CHICAGO — The Metropolitan St. Louis Sewer District has submitted a proposal to its rate-setting commission asking voters for authority to issue $945 million of bonds in coming years to fund capital projects, many of which are required under a tentative $4.7 billion agreement reached with federal authorities to settle a lawsuit.
The district will introduce an ordinance at its Thursday board meeting to empower its executive director and general counsel to sign the tentative agreement with the U.S. Environmental Protection Agency. Action on the measure could come later this month. An environmental group that joined the lawsuit has also agreed to the terms, but Missouri, which is also part of the litigation, has not yet signed off.
Like other actions taken against cities across the country, the EPA sued the district, alleging it violated federal clean water laws by allowing untreated sewage to seep into area waterways and the ground. Once signed, the consent decree would require federal court approval.
The district has agreed to spend $4.7 billion over the next two decades under terms of the consent decree to upgrade and build treatment plants, make other repairs, and install new sewer lines.
“The important thing for us is to protect the public’s health and safety, protect the environment, ensure regulatory compliance, and invest in our infrastructure, and this allows us to do that,” said district spokesman Lance LeComb.
Many of the projects outlined in the decree are already in the district’s long-term $6 billion capital program, so they are not expected to have a material financial impact, though the timing of projects could change.
“It’s all within the realm of what we had been anticipating,” said district treasurer Karl Tyminski.
In planning for its overall capital budget and the impending settlement, the district last month submitted a proposal to its rate-setting commission asking for a rate increase and approval to ask voters for new bonding authority.
If the commission agrees and if voters approve new debt, average monthly residential rates would rise to $47 in 2015. The borrowing would fund about $1 billion of projects planned for between 2012 and 2016, Tyminski said. If the district were to finance the projects on a pay-as-you-basis, it would need to raise average rates to $73. The district expects the commission to act on its proposal by the fall after public hearings. The bond question could appear on the ballot next April.
The district, which has ratings in the double-A category, has about $92 million in authority remaining from past bond referendums in 2002 and 2008. It plans to exhaust that authority this year. About $40 million would be raised through a state revolving fund issue and the other $52 million would be issued later this year in a competitive transaction.
The district, which has a $336 million annual operating budget, has favored negotiated sales in recent years, but given its solid credit and the small size of the deal, officials opted for a competitive issue.
“We’d always contemplated using both negotiated and competitive sales, and think the market may be receptive to this issue,” Tyminski said.
Public Financial Management Inc. and Butchermark Financial Advisors LLC are advising the district on the sale.
With calls from regulators and investors for greater disclosure growing and more issuance planned in the coming years, Tyminski said the agency plans to roll out an investors’ corner on its website next month. “The climate in the municipal market requires more transparency,” he said.
All three rating agencies affirmed their ratings last year. Fitch Ratings and Standard & Poor’s rate the bonds AA-plus. Moody’s Investors Service rates them Aa2. The bonds are secured by a pledge of net wastewater system revenue.
Fitch said district’s rating is supported by solid operating performance, consistently generating high annual debt service coverage of 3.1 times, and strong reserves and user rates that are competitive with other systems.
One challenge it cited was the agency’s negotiations with regulators regarding alleged discharge violations. “It is unclear when a settlement will be reached and what, if any, impact such a settlement will have on the district’s capital program,” Fitch wrote.
Moody’s wrote that it expects the “district’s sound financial operations will continue due to management’s demonstrated willingness and ability to adjust rates as needed to provide for strong debt-service coverage.
The 57-year-old agency provides wastewater treatment and stormwater services to 1.4 million residents in St. Louis and most of St. Louis County.
