Worcester’s expanding tax base offsets ballpark debt risk
The debt issuance by Worcester, Massachusetts to build a minor-league baseball stadium will probably not affect the city’s credit quality, said Moody’s Investors Service.
Worcester, New England’s second-largest city, intends to sell $27.5 million in general obligation bonds next week in the first installment of a $100.8 million issuance to finance Polar Park. City officials are hinging a $240 million development in the Canal District, south of downtown.
Local beverage company Polar acquired the naming rights.
The Class Triple-A Pawtucket Red Sox, a Boston affiliate, plan to move to Worcester for the 2021 season. They will play two lame-duck seasons in Rhode Island.
Moody’s on Tuesday affirmed its Aa3 rating.
Moody’s projects the new ballpark and other capital funding to increase Worcester’s already large debt outstanding by an average of 6% annually over three years, according to vice president and senior analyst Nick Lehman.
“The increase, however, comes as the city's economy and tax base continue to grow — factors that contributed to the Red Sox affiliate's decision to move to Worcester from Rhode Island,” said Lehman. “Assuming tax base growth continues at or near the current rate, the city’s leverage will remain manageable and the ballpark issuance will not strain its credit profile.”
According to Moody’s, the city’s leverage position, debt totaling $754 million representing 5.7% of the tax base, has historically been high with a large amount of bonds issued for education and infrastructure. Worcester has also issued pension obligation bonds and debt for economic development.
Worcester's leverage is even more burdensome when factoring its $467 million unfunded pension liability. “Positively, the city’s strong fiscal management and capital planning help mitigate the potential operating strain from the debt load,” Moody’s said.
The city benefits from a large “eds and meds” presence, with such institutions as Holy Cross University and the University of Massachusetts Medical Center. Worcester’s tax base rose by nearly 9% for the 2019-2020 period to $1.3 billion in equalized value. “Continued tax base growth will be key to the city's capacity to generate additional tax revenue to manage its debt burden and operating costs,” said Moody’s.
Moody’s cited Worcester’s successful CitySquare and DCU Center arena while acknowledging risks inherent to sports projects. The city projects revenues from the ballpark development district to provide at least 1.1 times to 1.4 times annual debt service coverage, or about $3.7 million, on the ballpark bonds.
“Still, the borrowing adds risk to the city's credit profile over the 30-year life of the bonds, including a diminished capacity to issue debt for other infrastructure projects and potential need to divert general fund revenues to repay debt,” said Moody’s.