Finance officials in the Boston suburb of Chelsea are putting the final touches on a $100 million bond issue, the first debt sale by the beleaguered city in more than 10 years.
The bonds are scheduled to be sold later this week by the newly formed Chelsea Industrial Development Finance Agency, with Lehman Brothers as senior manager. Proceeds will be used to build a new computer facility for the Massachusetts Department of Revenue.
Selling municipal bonds for a project in Chelsea was unthinkable until very recently. In September 1991, Gov. William F. Weld disbanded the city council and installed a receiver to run the city's finances and overhaul its entire governmental structure.
Before the 1970s, Chelsea was one of the most successful and busiest suburbs of Boston. But bad fiscal management and a growing poor population forced the city to borrow $5 million from the state to balance its budget in the mid-1980s.
It was then that Massachusetts created a financial control board for the city.
But in 1991, despite the control board, Chelsea faced $1.3 million in unpaid bills and a projected $9.2 million deficit in its $40 million budget.
The choice for Weld was putting the city into receivership or allowing it to file for bankruptcy protection under Chapter 9 of the Internal Revenue Service Codes.
The city's first receiver was millionaire businessman James F. Carlin. Carlin, paid $1 a year, cut $10 million from the city budget, paid off the city's deficit, and settled longstanding labor disputes with police and fire department unions.
In addition to fiscal issues, Carlin and the state also faced thorny political problems. During the last two years, several police officers, a former mayor, and several other municipal employees have been prosecuted and convicted for a host of crimes.
After Carlin resigned last August, Lewis H. Spence became receiver and began the second phase of the city's recovery--economic redevelopment.
The pending bond sale represents a large step in that redevelopment.
Although the bonds will be backed by several guarantees, Spence said Chelsea needs to get its name back into the municipal market. Plans are being finalized for an $11 million sale to finance the construction of a new courthouse and a $90 million school reconstruction financing.
When Chelsea went into receivership, the rating agencies suspended the city's ratings. This was not a pressing concern, since the last of the city's debt had matured in 1989. New ratings for the city are still under review, officials at the rating agencies said.
Two years ago, the Massachusetts Department of Revenue sent out requests for proposals to real estate agents for an available facility that could house the agency's computers and mail operation.
The facility would have to be "several hundred thousand square feet," and have one floor where 100,000 tons of tax forms could be processed, the request said.
But the state had a problem. Massachusetts law forbids a government department to enter into a lease lasting more than five years.
"There were two problems. First, facilities like we required were few and far between," said Mitchell Adams, commissioner of revenue. "Secondly, owners were not very enthusiastic about renting a facility with these specifications for only five years."
Adams said the few real estate developers that responded to the state's request offered leases that required too much rent too early on.
That convinced the state to build the facility from scratch, and city and state officials decided that siting it in Chelsea would help the city.
Although the development finance agency will issue the bonds, investors in the project have several guarantees.
The lease-backed bonds will be insured by Capital Guaranty Insurance Co. The development finance agency will sell the tract of land--on the Murray Hill Industrial Park--to
MIFA Property, Inc., a newly formed affiliate of the Massachusetts Industrial Finance Agency.
MIFA Property will own and develop the land and will lease it to the state. Specially constructed legislation allows the state to enter into a 30-year lease agreement with MIFA Property to provide debt service.
"MIFA has been pivotal in creating this project and getting it approved," said the senior banker on the deal, James B.G. Hearty, a senior vice president at Lehman Brothers. "The state's willingness to enter into a date-certain lease was also important."
Hearty said some questions about the deal's structure remain, but that he expects the bonds to be priced later this week or next week.