CHICAGO — Kansas City, Mo., Mayor Sly James has dropped plans to seek $500 million of voter-approved general obligation borrowing authority this summer in favor of a sales tax increase and a separate $500 million sewer bond question.
The plan is aimed at streamlining taxes and providing more funding for infrastructure. “Currently, the city’s revenue system is a tangle of taxes, fees and assessments that are both confusing and inefficient,” reads James’ proposal. “The Citizens’ Commission on Municipal Revenue has suggested reforms that will streamline funding streams, provide flexibility, and focus on funding essential functions first.”
The new sewer debt capacity would help keep in check rate hikes, which are needed to finance repairs to the system under a $2.5 billion federal consent decree reached in 2010.
The mayor had previously floated the new GO borrowing as necessary to speed up spending on citywide infrastructure needs, but it would have driven up property taxes and faced business opposition.
Instead, James now wants to seek voter approval to drop three tax assessments currently imposed on land and a vehicle license fee, while raising the sales tax by a half cent. The proposals were discussed by a joint City Council committee Thursday. They must be approved by the full council by late next week in order to appear on the Aug. 7 ballot.
Under the tax changes, Kansas City would lose about $14 million in annual revenue, including $3.5 million from the license fee and $10.5 million from the land assessments, which currently go to fund parks.
The sales tax hike would generate sufficient revenue to replace those lost funds and free up $13.5 million in park funding now supported by the general fund. The city would use the general fund revenues for street maintenance.
“It allows the city to spend more for infrastructure without raising property taxes,” said city Treasurer Tammy Queen.
The change also eases the direct burden on city taxpayers, as a good chunk of sales taxes collected by the city are generated by nonresidents. And it gives parks a funding stream that’s expected to grow; existing land assessment taxes have remained flat.
The sewer authorization, if approved, would help keep rate hikes to about 15%, compared to 25% if the city is forced to fund projects under the 25-year, $2.5 billion consent decree on a pay-as-you-go basis, the mayor’s office said.
The $500 million of new authority would finance projects over the next decade. The city would then need to return to voters for additional borrowing capacity. Kansas City has exhausted all but $42 million of previously approved sewer bonding authority, and Queen said she expects to tap that in a bond sale this fall. “If the sewer measure appears on the ballot and passes, we may do more,” she said.
Kansas City and federal authorities in 2010 signed the consent decree requiring upgrades to the city’s sewer system to eliminate overflows of raw sewage and to reduce pollution released in storm water.
Ahead of a sewer sale last fall, rating agencies affirmed the system’s double-A level ratings. .
Moody’s Investors Service said the rating is supported by the system’s large service area, which covers the vast majority of the Kansas City metro area; a stable regional economy; debt service coverage levels that have improved following consecutive rate increases; adequate net working capital; and moderate debt levels that are expected to rise as the system implements the decree mandated by the Environmental Protection Agency.
City officials met earlier this year with rating agencies ahead of a new-money and refunding GO sale. Fitch Ratings assigns a AA to Kansas City’s GOs, Moody’s rates them Aa2. Standard & Poor’s rates them AA. All three assign stable outlooks.