CHICAGO — The financial outlooks for the St. Louis Metro and Menasha, Wis., brightened this week after voters approved a sales tax increase for the struggling transit agency and a sale-leaseback transaction for the city that will help it settle $23 million of defaulted debt.
More than 60% of those who voted in St. Louis County approved the half-cent increase in Metro's sales tax. It's expected to raise at least $75 million to $80 million. The agency will use the additional funding to cover operations, including the cost of restoring service cuts made last year, and to expand its services. Voters had rejected a similar tax increase request in 2008.
Metro had warned voters that without the additional funds it would have to make dramatic cuts on top of the ones made in March 2009 due to growing budget costs, faltering sales tax collections, and dwindling federal funds. Metro currently collects a quarter-cent sales tax in St. Louis and St. Louis County.
Fitch Ratings gives a BBB-plus with a negative outlook to the agency, officially known as the Bi-State Development Agency of the Missouri-Illinois Metropolitan District. Moody's Investors Service rates it A2 with a negative outlook and Standard & Poor's rates it A.
In Menasha, voters overwhelming approved the $18.2 million sale of the city's electric utility assets to WPPI Energy. The city would then lease back the assets in a 20-year deal. Any money the city receives would go to help settle bondholder claims on the $23 million of defaulted bond anticipation notes and pending arbitration claims and regulatory fines. Menasha defaulted last September on notes that carried its appropriation pledge.
The notes were issued after the city in 2004 decided to convert a portion of its electric generation plant to produce industrial steam. The project was plagued with cost overruns and regulatory fines. The converted plant also failed to generate sufficient revenue to allow the city to issue long-term debt to retire the notes. The plant was closed last October.
The notes have strained city finances, led to its loss of an investment-grade general obligation rating, and hurt its near-term ability to access the tax-exempt market. A group of investors filed a federal complaint after the default alleging that Menasha and its utilities division "misrepresented" the coal-fired steam plant's business prospects and the true costs of converting it to steam operations.
The city now must resolve all pending claims involving the plant and win noteholder approval for the sale to proceed. It is unclear whether Menasha will offer up additional funds for investor claims.