CHICAGO – Kansas City prices $158 million of special obligation bonds Wednesday.
JPMorgan is senior manager on the $158 million deal March 8. First Southwest, a division of Hilltop Securities, and Moody Reid are financial advisors. Kutak Rock LLP and the Hardwick Law Firm LLC are bond counsel.
The special obligation bonds subject to appropriation are rated A1 by Moody's Investors Service which revised the city's outlook to negative ahead of the sale and AA-minus with a stable outlook by S&P Global Ratings.
The deal follows a $78 million water revenue bond sale last month and wraps up city borrowing planned ahead of an April 4 bond referendum. Voters will be asked to authorize $800 million in general obligation borrowing for infrastructure work over the next two decades.
The city has relied heavily on the special obligation security because its GO borrowing requires voter approval. The city's last major referendum was approved in 2004 authorizing $250 million for infrastructure, $30 million for zoo projects, and $20 million for upgrades to the Liberty Memorial monument. No tax hikes were required. It was exhausted in 2012.
If voters approve, Kansas City plans to tap the $800 million in annual $40 million increments over 20 years.
The GO authority supported by an increase in property taxes will allow the city to address critical infrastructure improvements of a range of city assets, said finance director Randall Landes.
"We think it makes financial sense and we have a moral and ethical obligation to make the improvements in a financially sound way that is mindful of our financial position and the impact on taxpayers," Landes said. Current spending can't "keep up with the infrastructure deficit that is accruing."
The referendum is posed in three questions and each requires a 'yes' vote of at least 57.1% of voters for approval.
The first asks for $600 million to repair streets, bridges, sidewalks, and trails with $150 million going to create a sidewalk repair program that eliminates the homeowner assessment.
The second question seeks approval for $150 million to improve flood control to prevent floodwaters from backing up into properties. The third question asks for $50 million to repair public buildings including upgrades to meet standards under the Americans With Disabilities Act.
The owner of a home valued at $140,000 and a car valued at $15,000 would pay on average $8 more annually that would rise to about $160 in year 20.
"This is about streets, roads, bridges, curbs, sidewalks, flood control, ADA compliance on public buildings, animal shelter, etc. That's it. No airport. No streetcar," Mayor Sly James said at a recent town hall meeting. He sought to separate the referendum funding from more controversial projects like the city's streetcar system and a pending proposal to build a new airport terminal.
To help sway the public, the city's authorizing resolutions outline how projects would be prioritized as well as the annual reporting requirements for the program, said city treasurer Doug Buehler.
With plans for the referendum looming, the city last fall adopted additional revisions to its debt policies which it began tinkering with about two years ago. They lay out debt service target ratios and require that future special obligation borrowing have a defined source of repayment, said Buehler.
The referendum has won the endorsement of labor, the Greater Kansas City Chamber of Commerce, Civic Council of Greater Kansas City, and several neighborhood organizations.
While no group has mounted a major effort to defeat the referendum, it has critics and has received push back from the public during hearings due to the need for a tax increase.
Freedom Inc., an African-American political club, voted to oppose the bonding because of its reliance on a prolonged property tax increase.
The city has $316 million of outstanding GOs, $1 billion of fixed-rate special obligation bonds, and $127 million of floating-rate special obligation paper. The city is renewing letters of credit this May on the floaters. The city has projects totaling $80 million planned over the next year that may require additional special obligation borrowing, including $35 million for a convention center hotel.
The deal this week includes a mix of new money and refunding bonds. It offers a $31.9 million taxable series maturing from 2017 through 2039, a $19.4 million series of tax-exempt bonds maturing from 2017 through 2036, a $90 million tax-exempt series that matures from 2022 to 2032, and a $16.6 million tax-exempt series maturing from 2018 to 2022.
S&P also affirmed the city's AA GO rating and Moody's affirmed the city's Aa2 GO rating.
The city benefits from a diverse revenue profile although uncertainty clouds its earnings tax which accounts for 41% of general fund revenues, S&P said. Voters approved a renewal of the 1% earnings tax in 2016. It must be renewed every five years.
"The negative outlook reflects the growth of the city's pension obligation and, when coupled with the elevated debt burden, the increase of fixed costs outpacing revenue growth. Continued leveraging of the tax base or unabated expansion of the pension obligation will place downward pressure on the rating," Moody's wrote.