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Quarles & Brady explains types of municipal debt, coverage rules to Wausau council
Summary
Bond counsel Quarles & Brady told the Wausau Common Council how general obligation and revenue bonds differ, reviewed statutory limits and coverage covenants, and answered council questions about the city’s outstanding debt and reporting practices.
Wausau bond counsel Quarles & Brady reviewed the city’s outstanding debt and the legal rules that govern different borrowing methods during the Jan. 14, 2025, Common Council meeting.
The presentation, led by Jake Lichter of Quarles & Brady, explained the firm’s limited role in issuances and the distinction between general obligation debt and revenue-backed debt. “Our role as bond counsel is a limited special engagement with the city,” Lichter said, adding that bond counsel issues an objective legal opinion on validity and tax treatment and reviews compliance with state and federal tax laws used by bond purchasers.
The nut of the presentation: general obligation debt is secured by the city’s full faith and credit and counts toward a constitutional 5% limit of equalized value, while revenue debt is secured by utility system revenues and is not counted toward that 5% limit. Lichter said the council’s most recent offering document shows roughly $69 million in general obligation debt outstanding and a statutory 5% limit about $219 million, leaving substantial unused statutory capacity. The firm also described routine market protections for revenue bonds, including a typical reserve fund equal to about one year’s debt service and coverage covenants requiring utilities to produce net revenues at specified multiples of debt service (commonly 125%).
Alder Rasmussen pressed for clarity about so-called Clean Water Fund and Safe Drinking Water loans, noting they are structured differently from market debt. “It is debt in the sense that the city is responsible for repaying the obligations. It is not debt as defined by certain Wisconsin case law and the Wisconsin statutes and the constitution when it comes to applying, like, the 5% equalized value limitation,” Lichter said.
Director Randy Freifrank, the city’s economic development director, and several council members stressed the value of retaining a long-term relationship with bond counsel for continuity across issuances and refinancing. Freifrank described the city’s use of disclosure counsel to ensure accurate offering documents and to coordinate with rating agencies such as Moody’s.
Quarles & Brady also summarized the protections that apply to state loan programs: the state’s clean water and safe drinking water loans carry statutory provisions allowing the state to collect unpaid amounts by withholding state payments or by using county apportionments in certain circumstances. Bridget Keating of Quarles & Brady joined Lichter during the presentation and offered to return to council to review covenants tied to any particular borrowing.
Council members generally said the presentation helped address public concerns about the city’s debt reporting and disclosure. Alder Rasmussen thanked counsel and urged local media to report the explanations to correct circulating misunderstandings. Lichter and Keating closed by offering to meet again to walk through specific resolutions when the council considers particular borrowings.
