CHICAGO – Voter passage of tax and bond measures sought by Kansas City and St. Louis will benefit the Missouri cities’ credit profiles, according to Moody’s Investors Service.
Kansas City won approval on the April 4 ballot for $800 million of general obligation borrowing supported by a property tax hike. The city will tap the authority in annual $40 million increments over 20 years. The city pushed for the measure to fund critical infrastructure needs.
Moody’s called Kansas City’s success a “credit positive because it allows the city to address maintenance needs that would otherwise require pay-go funding or maintenance deferral. The city must maintain a sufficient property tax rate to cover debt service.”
The city has $316 million of outstanding GOs, $1 billion of fixed-rate special obligation bonds, and $127 million of floating-rate special obligation paper. S&P Global Ratings recently affirmed Kansas City's AA GO rating and stable outlook and Moody's affirmed its Aa2 GO rating and negative outlook.
St. Louis voters approved a sales tax increase to fund a light-rail expansion and other projects. The half-cent economic development sales tax measure will raise about $20 million annually to fund an expansion of the city’s MetroLink light-rail system, neighborhood revitalization projects, city infrastructure work, and workforce development and public safety initiatives.
The vote triggered a corresponding half-cent increase in the city's use tax imposed on businesses purchases outside the state, but voters rejected a question asking whether a portion of those new revenues should go to help finance a Major League Soccer stadium.
With the exception of the MetroLink funding, the funds resulting from both votes provide the city with the opportunity to supplement general fund operations. “The combination is credit positive because it will provide the financially distressed city with the opportunity to increase funding for operations, albeit by a modest amount,” Moody’s wrote in its weekly outlook report published Thursday.
The referendum comes as the city is facing fiscal strains. Moody's dropped the city's rating one notch to A3 recently and assigned a negative outlook, warning another could be on the horizon unless the city experiences stronger revenue growth or trims spending.
Fitch Ratings 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 assigns its A-minus issuer default rating and rates the MFC BBB-plus. It does not assign a direct GO rating. S&P rates St. Louis GOs A-plus.