CHICAGO -- A petition drive opposing a half-cent sales tax in St. Paul threatens to cloud the issuance of $40 million of revenue bonds backed by the tax to help finance renovation of the city's Civic Center.

The City Council has put the bond issue. which was scheduled for a Sept. 14 pricing, on hold pending a review of the size and scope of the renovation project. Meanwhile. Moody's Investors Service, the only rating agency asked to rate the issue, has expressed concerns about assigning a rating amid grass roots efforts to oppose the tax.

The City Council passed the sales tax in a 5-to-2 vote last month after receiving approval for the tax in May from the Minnesota Legislature.

Civic Center officials have said that renovation of the civic center is necessary to enable St. Paul to remain competitive in seeking convention business.

But St. Paul mayoral candidate Gerald Isaacs, who is organizing a petition drive to repeal the sales tax, claims that St. Paul residents have a right to vote on the tax. St. Paul officials said the city will begin assessing the sales tax tomorrow.

Currently, the state assesses a 6.5% sales tax in the city. The new city tax will bring the total to 7%.

Anne Ostberg, spokeswoman for Mayor James Scheibel, said that the opponents must gather 6,476 signatures from St. Paul registered voters to place the issue on the Nov. 2 ballot in conjunction with the mayoral election. Scheibel is not seeking re-election, Ostberg said.

St. Paul officials said that the signatures would have to be submitted to the city by Sept. 15 or else the city would have to hold a special election after Nov. 2 at a cost of 100,000.

Thomas Cran, the city's budget analyst, said that if the tax referendum is placed on the ballot and rejected by voters, the city could not issue the bonds.

Unrelated to the petition drive, the bond issue was recently placed on hold by the City's Council's Housing and Economic Development Committee, Cran said. The bonds are scheduled to be underwritten by Dain Bosworth Inc.

The committee is scheduled to meet Sept. 22, city officials said.

Dan Aschenbach, a vice president at Moody's Investors Service, said that the rating agency is waiting for a legal opinion that upholds the validity of the planned bond issue before it issues a rating.

Aschenbach said that the Minnesota Supreme Court in 1982 ruled in a precedent-setting case that a repeal of a tax slated to back bonds would "unconstitutionally impair the rights of bondholders."

"This will be an important factor in our review," Aschenbach said.

Aschenbach said that 40% of the $9 million of annual proceeds projected from the tax would be dedicated to debt service on the bonds. The remaining proceeds would provide funds for neighborhood and cultural projects, he added. In January, St. Paul bought back the Civic Center from a private partnership for $63.7 million, partly financed with $36 million of bonds secured primarily with downtown tax increment financing district revenues.

In 1983, the city, as original owner of the center, entered into a sale and leaseback agreement with the private partnership. The agreement required the city to make annual lease payments of $7.1 million a year until 1998. In exchange, the city received $41 million to finance downtown and neighborhood projects.

St. Paul assumed ownership of the Civic Center to help facilitate city efforts to garner state assistance for improvements, according to city officials.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.