DALLAS - Pharr, Tex., expects to sell up to $18 million of tax-exempt bonds late this year to build a toll bridge into Mexico that is expected to generate development and new cash for the city's budget.

City Manager Pete Sepulveda said the long-awaited bridge across the Rio Grande could be operational by January 1995 and is projected to generate up to $2.5 million a year in profits for the city's $10 million general fund budget.

"We are talking about an injection to our general fund of about 25%," he said. "That would not include the economic development that we expect from this."

Cris Vela, vice president at Masterson, Moreland, Sauer, Whisman Inc. of Houston, the city's financial adviser, said the city hopes to use the bridge to attract industry and retail businesses that are prospering in border cities.

"The real motivating factor is not the revenues, but the economic stimulus it will provide," said Mr. Vela. "If we can make new revenues, then that is all the better."

Historically, Texas border cities along the 1,200-mile path of the Rio Grande have used bridges not only for commerce with Mexico, but also as a source of non-tax revenues. For instance, the profits off one neighboring bridge total nearly $3 million a year.

"These are cash cows," said Chris Evangel, assistant vice president at Moody's Investors Service, who said the dozen toll bridges on the border have historical coverage of up to six times annual debt service. "They are substantial generators of revenue, especially for smaller cities."

Pharr officials began discussing construction of their own bridge in the 1950s, with serious planning under way since 1978.

The project could help improve the city's profile on Wall Street. Moody's rates the city's $3 million of outstanding GO debt at Baa, the same as its $10 million of water and sewer debt.

Mr. Evangel said that while the city has relatively low debt levels and a payout of 80% of its GO debt in the first 10 years, other factors are not as favorable. Pharr has few large local industries and a per capita income that is about half the statewide average.

"They have high levels of poverty," Mr. Evangel said, noting that nearly four out of 10 residents are below the federal standard.

With a possible economic payoff as incentive, the city has pushed forward with the project. Besides changes in state law, it took years of paperwork to win the necessary federal permits to build a bridge across the Rio Grande, Mr. Vela said.

Last week, a congressional committee passed a critical component of the estimated $70 million project, which will encompass both Pharr and neighboring Reynosa, Mexico.

Sen. Phil Gramm, R-Tex., announced that the Senate Appropriations Committee, of which he is a member, had approved $18.5 million of federal moneys to build an inspection facility on the U.S. side of the bridge. The facility will be operated by federal agencies, including U.S. Customs, Immigration and Naturalization Service, and the Department of Agriculture.

"It's a very important component of the plan," said Mr. Vela.

On the Mexican side, a private partnership is expected to fund part of the project, with up to $40 million of financing through Dillon, Read & Co.

In Pharr, officials have named Dillon Read to underwrite an estimated $15 million to $18 million of 20-year serials as early as December. Bondholders would have no collateral interest in the bridge and the bonds would be supported only by pledged revenues.

Mr. Vela said the debt is expected to be backed first by project revenues and then by an unlimited tax pledge of the city.

He said early feasibility studies have shown that bridge revenues will support up to $25 million of debt. Such projects are generally supported only by revenues of one-way traffic. Under such arrangements, the Mexican toll operators collect moneys from vehicles going north, while U.S. cities collect money from southbound traffic leaving Texas.

Because city officials do not expect the double-barrel revenue pledge to win the project an A-category rating, they plan to seek credit enhancement.

The bridge would be the third toll project built in the area. Mr. Vela said the new bridge into Reynosa will offer commercial traffic a bypass around busy cities to Texas Route 281.

"We believe we could attract 25% of the traffic that is now using other bridges," he said.

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