Members of the town council in Secaucus, N.J., may sue a local utility authority for selling a $31 million refunding issue without the council's approval.
For the past year, a four-member majority of the six-member town council have wrangled with officials from the Secaucus Municipal Utilities Authority over the refunding, which was underwritten in October by First Fidelity Securities.
In May, the majority approved a resolution to stop the bonding. Dennis Elwell, the council's majority leader, said the members believe the issue is illegal because the council didn't approve the issue. Elwell said the council may even withhold appropriation of debt service on the securities.
In addition, Elwell said he and the other council members are seeking legal action against the authority for issuing the bonds without the council's majority approval. Elwell said a service-contract relationship between the authority and the council mandates that the council approve all authority bond issues.
Council members say the authority completed the issue despite serious disclosure problems that were brought to their attention by bond counsel John Frohling. Elwell could not elaborate on those concerns, and Frohling could not be reached for comment by press time last Wednesday.
"They basically said, 'If you don't like it, sue us,'" Elwell said. "We're moving ahead."
Richard J. Ricco, chairman of the Secaucus Municipal Utilities Authority, said Elwell and other alliance members have done nothing more than waste time and taxpayer dollars by challenging the refinancing.
Ricco said the issue is legal, and that the service contract does not give the council the authority to approve the deal.
"This refinancing should have happened over a year ago," Ricco said. "The Independent Alliance constantly brought up questions, anything to stall this refinancing."
The authority achieved savings of $1.7 million from the deal, Ricco said. But if the bonds had gone to market in October or November of 1993, he said, "the taxpayers would have saved $2.8 million."
Jack Kraft, the authority's bond counsel, said the service contract requires the town to make an annual appropriation that would pay the authority's operating costs and debt service.
"The town felt that it was entitled to approve or disapprove the refunding of the bonds. But in fact, they were not given the right of approval in the service contract," Kraft said.
For their part, credit rating agency officials say they are confident that Secaucus will make good on its payments to the authority.
Paul Devine, a vice president at Moody's Investors Service, said Secaucus' agreement to pay the authority is a full faith and credit obligation. "They are obligated to budget this payment and appropriate this payment every year. They have a legal obligation, and we have every reason to expect that they would live up to that," Devine said.
Richard Marino, director of the eastern region ratings group at Standard & Poor's Corp., said the appropriation for debt service on the bonds is in accordace with the service contract
Moody's rated the tax-exempt portion of the authority deal Aa. Standard & Poor's rated it Aa-minus.
