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City of Kansas City, Mo.

CONTACT: City Communications, 816-513-1349


Moody’s and Standard & Poor’s affirm City bond ratings

Fitch downgrades on earnings tax uncertainty

The City of Kansas City, Mo.’s upcoming General Obligation Improvement & Refunding Bonds, Series 2011A scheduled for issuance on March 15, 2011 has been affirmed by Moody’s Investor Services and Standard & Poor’s as “Aa2” and “AA“ credit ratings and stable outlooks, respectively. The proceeds from the bond issue will be used for various infrastructure projects throughout the City, including repair and maintenance at the Zoo.

In conjunction with the upcoming bond issue, on Feb. 22, 2011, Fitch Ratings released its downgrade of the City’s general obligation bond rating from “AA+” to “AA” with a negative outlook. Concurrently, Fitch downgraded the City’s appropriation-backed bond rating from “AA-” to “A+,” whereas Moody’s and Standard & Poor’s affirmed their appropriation-backed ratings of “A1” and “AA-,” respectively.

Moody’s credit ratings “reflect the City’s substantial economy and its regional role as the hub for a larger metropolitan area,” as well as “management’s proactive approach to determining potential expenditure cuts and revenue enhancements should voters repeal the earnings tax.” However, Moody’s cautions that they expect the City’s financial position “will experience ongoing challenges related to a sluggish recovery of operating revenues, as well as the possible phase-out of the earnings tax.”

Standard & Poor’s credit ratings cite the City’s “position as the regional center of a strong and diverse economic base” along with “strong financial management policies and procedures.” Standard & Poor’s noted its expectation “that officials will continue to monitor the City’s financial operations closely to maintain balanced general fund operations and good reserves” and might “lower the rating if the City’s operating revenues or financial operations, as a whole, come under pressure, causing reserves to deteriorate.”

Although acknowledging that the “City has a deep and diverse economic base that serves as the economic engine for western Missouri and eastern Kansas,” Fitch stated that their “downgrade reflects the greater inherent risks” created by the new requirement for voters to approve the continuation of the earnings tax every five years.Fitch stated that the negative outlook “reflects the risks associated with the voter referendum.” Fitch additionally noted that if City residents do not maintain the earnings tax, a potential further credit rating downgrade could be triggered.

The earnings tax vote stems from a successful effort by St. Louis-area businessman Rex Sinquefield to change the way Missouri’s two largest cities collect taxes. A proposal to renew the earnings tax in Kansas City is on the April 5 ballot.

“This is exactly what I feared when an outsider, with no knowledge about Kansas City, came into town to tell City residents what to do,” said Mayor Mark Funkhouser. “The uncertainty the earnings tax vote brings has caused this downgrade, and Rex Sinquefield could well cost City taxpayers money through higher interest payments.”

Interim City Manager Troy Schulte indicated he was “disappointed to learn of the downgrade and subsequent negative outlook by Fitch.” Further, he felt that “the affirmation of the ratings by Moody’s and Standard & Poor’s reflected confidence in the City’s ability to manage its overall financial condition.”

Media inquiries and other requests for more information about this issue should be directed to City Treasurer Tammy Queen, 816-513-1024.


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