FOR IMMEDIATE RELEASE: Jan. 28, 2008
City’s general obligation bond credit ratings are affirmed
Credit rating agencies also assign rating for 2008 special obligation bonds
Moody’s Investor Services, Standard & Poor's and Fitch Ratings affirmed their “Aa3,” “AA” and “AAA” credit ratings, respectively, for the City of Kansas City Mo., general obligation bonds.
Additionally, the agencies assigned their “A2,” “AA-” and “AA” credit ratings, respectively, for the $45.1 million of the City’s special obligation and refunding bonds series 2008 A&B (the “2008 special obligation bonds”) scheduled for issuance on Feb. 28.
“Affirmation of the City’s general obligation credit ratings demonstrates the capital market’s continued confidence in the financial management of the City and its overall progress relative to peer cities,” City Manager Wayne A. Cauthen said.
Proceeds from the upcoming 2008 special obligation bond issue will be used to fund land acquisition and relocation of the Missouri Department of Transportation maintenance facility in conjunction with the Columbus Park Project; infrastructure and streetscape on Second Street between Oak and Delaware streets; exterior and interior improvements for the Swope Ridge Geriatric Center; development and construction of 21 acres for the new Vehicle Impound Facility; refunding the Series 1998A KCMAC Bonds originally issued to finance certain improvements to a municipal golf course; and refunding the Series 2001 Century Towers bonds originally issued to finance the costs of acquiring, constructing and improving the former University Hospital.
Moody’s Investors Service A2 rating on the 2008 special obligation bonds reflects the City's high quality Aa3 general obligation rating, the risk related to annual appropriation and the “non-essential” nature of the financed projects. Moody’s affirmation of the City's Aa3 general obligation rating and stable outlook reflects the City's role as the economic hub of a larger metropolitan region; satisfactory financial position facing narrowing reserves; and above-average debt position that is expected to moderate.
In their credit analysis, Moody’s noted the City's strong fiscal year 2006 results and modest fiscal year 2007 shortfall following a period of declining reserves due to significant capital investment and sluggish primary revenue performance. For fiscal year 2008, Moody’s expects year-end results to be more favorable as the City enacted expenditure controls in the first quarter of the year and believes revenue forecasts remain conservative.
Moody's expects the City's increasingly diverse employment base, significant amounts of land available for development and continued downtown revitalization and redevelopment will lead to long-term growth in the City's property, sales and earnings tax bases. Moody's also thinks the potential for continued long-term growth exists as nearly half the City's land remains undeveloped, especially in the northern part of the city.
Moody’s praised the City for management's efforts to diversify the debt portfolio associated with its downtown redevelopment efforts; hedge a portion of its remaining project-related variable rate debt; reduce the amount of debt supported by the City's appropriation; and enact both debt and economic development policies.
Standard and Poor’s 'AA-' rating for the 2008 special obligation bonds reflects the City's pledge to pay debt service, subject to annual appropriation. The affirmation of the City’s general obligation rating reflects the City's position as the regional center of a strong and diverse economic base; growing population and tax base with ample open space available north of the Missouri River for additional growth; and satisfactory financial position. Offsetting factors are the City’s reliance on economically sensitive income taxes for a large portion of general fund revenues and its growing debt burden, which has now reached the high range.
City's management practices improved from “good” to “strong” under Standard & Poor's Financial Management Assessment as a direct result of the City Council approving formal debt and debt derivative policies in 2007. A Financial Management Assessment of strong indicates that management practices are strong, well-embedded and likely sustainable.
Fitch’s ‘AA’ rating on the 2008 special obligation bonds is based on the covenant that each fiscal year, the City’s budget will include an appropriation sufficient to pay principal and interest when due. Fitch’s affirmation of Kansas City’s ‘AAA’ general obligation rating is based on the City’s diverse economic and tax revenue structure and excellent financial control systems.
Fitch’s Rating Outlook on all bonds is changed to negative, from stable, based on a recent general fund operating deficit coupled with an economic slowdown that may pressure revenues and financial operations. If these pressures continue, Fitch would consider lowering the general obligation and appropriation-backed ratings. Fitch noted that overall debt ratios are high, particularly for a ‘AAA’ rated credit and that while tax revenues made gains in fiscal 2007, reduced service charges and fees, combined with increased public safety spending and fuel costs, led to a $8.8 million general fund shortfall.
Finally, Fitch noted that in May 2006, voters approved a City Charter amendment that will allow more flexibility in debt issuance (e.g., competitive v. negotiated) and promote best practices for debt management, proceed use and economic incentives.
“I am pleased to note the tangible results reflected in the City’s credit rating reports resulting from the City Council’s adoption of economic incentive and debt policies,” Mayor Mark Funkhouser said.
Media inquiries about this issue should be directed to the city treasurer, Randall Landes, Finance Department, (816) 513-1024.