Moody’s Investors Service said last week it expects Missouri cities will maintain their credit quality amid ongoing economic and budgetary challenges due to slow overall growth, weak consumer confidence and persistently above-average unemployment.

The state’s cities rely heavily on sales taxes to fund operations. Those collections have been under pressure since 2008 due in part to the lackluster economy. Missouri cities are statutorily limited from increasing revenues without first winning voter approval through a lengthy process, so their ability to counteract lackluster sales tax collections is limited.

“As such, they’re often forced to balance their budgets by reducing operating expenditures through public service cuts, or by delaying capital-related expenditures,” Moody’s noted. “Despite these challenges, credit quality is expected to remain stable for most rated cities in Missouri.”

Factors contributing to the assessment include economic diversification in the larger metropolitan areas that partially mitigates the effects of the state’s overall sluggish economy; historically strong reserve levels that provide a short-term cushion; and dedicated revenue streams for capital needs that have precluded the need for significant debt financing.

Moody’s said credit quality will continue to depend on cities’ willingness to maintain their reserve levels and adhere to their reserve policies, overall improvement of sales tax collections and improvement in other revenue sources, and cities’ ability to address their respective deferred capital needs.

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