THE MISSISSIPPI LEGISLATURE
The Joint Committee on
Performance Evaluation and Expenditure Review
Report # 334
Executive Summary for
A Review of the Financial Viability of the
Mantachie Natural Gas District
and the State's Relationship to the District
February 22, 1996
Introduction
When the Legislature created the Mantachie Natural Gas District in northeast Mississippi in 1966, it declared the district to be a political subdivision of the state, with the authority to issue revenue bonds. Amendments to state law in 1982 placed a $3 million cap on the Mantachie Natural Gas District's revenue bonding authority. In February 1987, the district closed on $2.78 million in revenue bonds to begin construction on the natural gas system.
Since it became fully operational in 1988, the district's annual expenses have exceeded its revenues, and as of September 30, 1995, the district is in default on $360,000 of the principal of its bond issue. Also, the district has failed to pay over $300,000 in accrued interest on the outstanding bonds. The district's total debt, including past due and future obligations, is $3,025,000. In 1995, the Legislature denied the district's request for an increase in its bonding authority.
In response to a legislative request, PEER reviewed the financial viability of the district and the state's potential liability regarding the district's default on its bond indebtedness.
Overview
The major state issues relating to the Mantachie Natural Gas District involve whether the district is financially solvent and, if not, whether the state has any liability for the district's indebtedness.
Is Mantachie Natural Gas District generating sufficient revenues to continue its operations and pay its debts?
No. Based on PEER's projections, the district may generate annual net incomes of $58,783; $46,479; $64,900; $83,356; and $102,783 for fiscal years 1996 through 2000, respectively. However, the district's inability to generate revenues sufficient to make scheduled principal payments, pay day-to-day operating expenses, and pay off its high cumulative debt raises serious doubt regarding its ability to operate as a going concern. As of September 30, 1995, the district's total debt, including past due and future obligations, is $3,025,000.
The district's bondholders have had a legal right to place the district in receivership since 1991, when the district went into default. Although bondholders have shown considerable forbearance to date, they could exercise their right to dissolve the district and seize its assets at any time.
Does the state have any potential liability regarding the district's default on its bond indebtedness?
No. Based on an examination of the district's enabling legislation, other statutory sources, general principles of bond law, and relevant case law, the State of Mississippi cannot be held liable for the default of MNGD on its bond obligations.
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