CHICAGO — Kansas City, Mo., voters head to the polls Tuesday to decide a $500 million sewer bond authorization to finance projects required under a $2.5 billion federal consent decree.
The city will also ask voters to approve a sales tax increase that would pave the way for a streamlining of some city taxes that would free up some general fund money for infrastructure. Mayor Sly James and the council settled on the plan last spring over one that sought more general obligation borrowing capacity. The GO plan would have raised property taxes and faced business opposition.
If approved by voters, the city would drop three tax assessments currently imposed on land and a vehicle license fee, while raising the sales tax by a half cent. 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 is expected to grow; existing land assessment taxes have remained flat.
The new sewer debt capacity would help keep in check rate hikes, which are needed to finance repairs to the system under the $2.5 billion federal consent decree reached in 2010. 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 program on a pay-as-you-go basis.
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 a previously approved $500 million sewer bond referendum. The city has $104 million of remaining water bonding authority under a separate $500 million authorization. It would tap half next January or February and the remainder the following year.
The city will exhaust its existing sewer capacity in a deal this fall. The underwriters have not yet been chosen. First Southwest Co. and Moody Reid Inc. advise the city on sewer issues.
The current underwriting pool for sewer issues was approved in 2010 and includes 21 firms. The city would draw from it for the fall deal and future issues if the referendum is approved, Queen said.
If the ballot measure is approved, the size of the fall deal will likely grow. The timing of future sales is not yet set. "It will depend on what kind of rate increases the council has an appetite for and the timing of projects that need to be done," Queen 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, Moody's Investors Service and Standard & Poor's affirmed the system's double-A level ratings. They are not rated by Fitch Ratings.
Moody's 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.