CHICAGO – The results of bond-related ballot measures in Missouri Tuesday offer mixed credit results, Moody's Investors Service said Friday.
Voter renewal of a 1% earnings tax in Kansas City and St. Louis offer positive credit momentum as the tax, which must be renewed every five years, represents 40% and 33%, of their respective cities' operating revenues.
Ferguson voters' rejection of a property tax hike is a credit negative for the junk-rated city. Ferguson voters did approve a sales tax hike.
"The mixed outcome was a credit-negative setback for the city," Moody's said of Ferguson which carries a Ba2 rating that has been under review for a downgrade.
Voters shot down a proposed $0.40 per $100 of assessed value property tax hike that would have generated $640,000 annually, or 22.6% of the city's projected budget deficit. In contrast, voters approved a 0.5% sales tax hike for economic development. It's expected to raise $800,000 per year, or 28.2% of the deficit.
"Both ballot measures were integral to city management's proposed solution to close a $2.8 million budget gap that existed before a recently approved US Department of Justice consent decree," Moody's said. The city operates on a $14.5 million budget.
The city's voters did approve a one-fourth cent economic development sales tax that is projected to generate about $1.2 million annually.
The city asked for the tax hikes to fund rising costs in the wake of the controversial police shooting to death of Michael Brown in 2014. Moody's put the city on a fresh review after the U.S. Justice Department filed a federal lawsuit in February accusing Ferguson of policing and municipal court practices that violate constitutional and federal civil rights.
The lawsuit followed the Ferguson city council's decision to water down a negotiated consent decree. The city recently reversed course and agreed to sign the consent agreement. The city estimates the agreement's implementation cost in the first year could run as high as $1.5 million with costs falling under $1 million in subsequent years.
Spending cuts "will have to be much deeper now that the property tax increase was defeated," Moody's said. "Ferguson's only other significant, untried viable revenue enhancement option is to increase its 6% utility gross receipts tax, which constituted $2.4 million, or 20%, of general fund revenues in the fiscal year that ended June 2015."
In its weekly outlook, Moody's also commented on voter passage of the Metropolitan St. Louis Sewer District's request for $900 million of new borrowing authority. "Although increasing debt is not a credit positive, the district is currently in its fifth year of an intensive capital improvement program that includes combined sewer overflow and sanitary sewer overflow mitigation as required under a 2012 federal consent decree with the US Environmental Protection Agency," Moody's said.
If voters had not approved the borrowing, the district would have required higher rate hikes to fund projects outlined in the $4.7 billion agreement.