CHICAGO – St. Louis received a downgrade from Moody's Investors Service Tuesday and another could be on the horizon unless the city experiences stronger revenue growth or trims spending.
The rating agency dropped the city's general obligation unlimited tax rating to A3 from A2. The St. Louis Municipal Finance Corp.'s essential purposes lease revenue debt rating was dropped to Baa1 from A3 and the rating on less essential purposes was dropped to Baa2 from Baa1.
The outlook on all the ratings remains negative. The lease debt rating reflects appropriation risks.
The downgrades reflect the city's "weak reserve position that will remain challenged in the near term due to limited revenue raising flexibility coupled with the city's reliance on economically sensitive revenues and below average resident wealth levels," Moody's said.
The city's financial position faces further deterioration this year with significant additional revenue growth or spending cuts needed to offset reserve declines.
"Future reviews will focus on management's ability to balance the budget and generate sufficient revenues to improve the balance sheet," Moody's added.
Comptroller Darlene Green sought to highlight the positives in the Moody's report, noting that Moody's described as strengths the city's large and diverse tax base and status as a regional economic center.
"The city's strong fiscal management team has implemented a financial strategy to grow its reserves and diversify and increase its revenues," Green said in a statement.
The city of roughly 315,000 along the Mississippi River and Illinois border is one of the largest metro areas in the state.
Fitch dropped St. Louis' issuer default and Municipal Finance Corp. ratings by three notches in June over negative trends and the application of new criteria in assessing tax-supported debt. Fitch now rates the issuer default rating at A-minus and the MCF BBB-plus. It does not assign a direct GO rating. S&P Global Ratings rates the city in the single-A category.
Voters on April 4 will decide whether the city should levy a half-cent economic development sales tax to raise about $20 million annually. About 60% would go to fund a light-rail line for the Metrolink system. The remaining revenue raised by the tax would finance neighborhood revitalization projects, infrastructure, workforce development, and public safety initiatives.
If the sales tax measure is approved it would trigger a corresponding half-cent increase in the city's use tax imposed on businesses purchases outside the state. On the ballot, voters would be asked whether the city should use the $4 million in annual revenue raised from the tax to help finance a stadium for a new Major League Soccer franchise as well as job training and economic development initiatives.