The St. Louis County Council earlier this week approved putting a half-cent sales tax increase for the Metro transit agency on the April ballot.
The council approved the ballot measure amid warnings from the agency that without increased revenue, it would have to deeply cut service. Metro earlier this year cut service by 30% due to a budget deficit, but later reversed about half the cuts due to federal stimulus funds.
The agency's operational and capital challenges prompted a two-notch downgrade. While the federal funds provided a temporary salve, the sales tax increase is needed to provide a longer-lasting budget solution, officials have said.
Voters rejected a half-cent increase last November. Metro's $208 million fiscal 2010 operating budget incorporated an expected 6 % drop in sales tax collections. Officials hope the restored service will help sway voters in favor of the referendum. Metro currently receives about $50 million annually from a quarter-cent sales tax in St. Louis and St. Louis County. The failed measure sought a half-cent increase, with half earmarked for operations and the other half to expand rail service.
Fitch Ratings early this year downgraded Metro — formally known as the Bi-State Development Agency of the Missouri-Illinois Metropolitan District — to BBB-plus and assigned a negative outlook due to its challenges.
Analysts said their decision reflected "the realization of a multiple downside scenario" due to the weight of the challenges facing the agency, including the accelerated amortization of bank bonds, swap termination costs, and possible payments related to sale-leaseback transactions.
Fitch analysts view the credit negatively because of further risks posed by the economy, which could cut deeper in sales tax collections that go to repay the bonds.
Moody’s Investors Service rates Metro’s senior-lien debt A2 with a negative outlook. Standard & Poor's rates it A.