Rapid City, SD rejects plan to lease wastewater plant to financial group

By Diane Rietman, Journal Staff Writer

RAPID CITY — The Rapid City Council unanimously turned down a plan to lease the city's wastewater treatment plant to an investment group that claimed it could put $9.2 million into city coffers.

Late last week, city officials received the 4-inch-thick contract from Allco Financial and its partners. The city approved a resolution to move ahead but after reading the detailed contract, decided it was not a good move for the city.

"This, in my opinion, is an extreme financial risk for the city," City Attorney Theresa Maule said.

The council agreed by unanimous vote Monday night to end any further plans to participate in the lease-leaseback plan.

Maule said there were several flaws in the contract that stood out as problems for the city. For example, any legal issues dealing with the contract would have to be heard in New York, not South Dakota, courts. That would require the city to hire a New York attorney at a substantial cost, Maule said.

There was also an issue of indemnification. If the tax shelter were to fail, the city would be responsible for paying the investment group's taxes and any judgments from lawsuits, she said.

There were also concerns that the funding corporation is in the Cayman Islands.

Todd Meierhenry, who represents the state's Municipal Facilities Authority, tried to contact Allco about its concerns and failed to get a response from Allco officials. In 2001, the South Dakota Legislature passed legislation giving cities the authority to make such deals and created the Municipal Facilities Authority to help handle the deals on behalf of the cities. Meierhenry was also raising concerns about the contract, Maule said.

Under the program, Rapid City was to have been paid $255 million — the assessed value of the treatment plant. The city would have kept nearly 4 percent of that amount, or $9.2 million, for its own use. The remaining money was to have been placed in a trust to cover the lease of the building over the next 25 to 30 years. The city would have retained ownership and operation of the plant.

Investors would have been able to use the depreciation as a financial benefit not available to government agencies.

Copyright 2003 The Rapid City Journal
Rapid City, SD