CHICAGO -- Detroit has postponed until next month the sale of up to $175 million of bonds for its waste incinerator that had been scheduled for this week, because of continuing legal work on the planned sale of the facility to Philip Morris Capital Corp.
Officials are counting on the incinerator's sale to balance the city budget for the last two fiscal years. About $15 million from the $54 million sale would be applied to the fiscal 1990 budget, and $39 million would be used toward the fiscal 1991 budget, which ends June 30. But the sale is contingent on the installation of pollution-control equipment that is to be financed with proceeds from the bond issue.
Bella Marshall, the city's finance director, said the facility sale and bond issue were tied together and that both should happen within "a few weeks."
"Everyone is extraordinarily committed to this transaction," she said. "There is no doubt in my mind that it will go forward."
While Detroit expected to have the sale completed by June 03, Ms. Marshall said the delay in receiving the $54 million would not cause any cash-flow problems for the city.
But officials at the rating agencies expressed concern that even with the cash infusion from the sale, the city would face tough times ahead.
"We believe the city's general fund is under tremendous pressure now with no resources in the budget stabilization fund and general fund," said Art Grisi, a senior vice president at Standard & Poor's Corp., which rates about $230 million of the city's general obligation debt BBB with a negative outlook.
By the end of the current fiscal year, the city will have depleted the remainder of its budget stabilization fund, which last year stood at $76 million.
Even with the use of the rainy-day fund and the incinerator sale proceeds, the city would still end fiscal 1991 with a $10 million to $15 million deficit, according to Paul Devine, a vice president and manager of the Great Lakes Region at Moody Investors Service. Moody's rates about $246 million of Detroit's GO debt Baa.
Ms. Marshall said temas of lawyers were working on the complicated sale of the Greater Detroit Resource Recovery Authority incinerator. The sale involves numerous contractual agreements that would allow the company to buy the waste incinerator for tax credit purposes, while letting the city and its contractors continue to operate the facility.
Ms. Marshall pointed out the bond sale was key to ensuring the "long-term operation" of the incinerator. Last year, the Michigan Department of Natural Resources briefly closed the facility due to excessive mercury emissions. It also cut its operations by 10% after the plant reopened.
The city plans to issue up to $175 million of pollution control bonds through its Economic Development Corp. The bonds would be backed by the city's GO pledge and its share of distributable state aid.
Ms. Marshall confirmed that $75 million of the bonds would be tax-exempt, reflecting Detroit's share of Michigan's $466 million of allocation under the private-activity cap for the current calendar year.