Saturday, May 23, 2020
KANSAS CITY SUFFERS NEGATIVE BOND DOWNGRADE DESPITE OVERLY OPTIMISTIC 85%-90% E-TAX RECOUP PREDICTION!!!
The global recession, and near depression, sparked by coronavirus has hit Kansas City finances harder than most.
With little to no "Cares Act" stimulus coming soon, the economic implications are dire. Many critics of KCMO spending have predicted impending bankruptcy without some form of emergency action.
Accordingly, here's how a major bond rating firm sees this town's debt obligations . . .
Fitch Ratings Affirms Kansas City (MO)'s Issuer Default Rating (IDR) at 'AA-'; Outlook Revised to Negative
"The Rating Outlook Negative reflects Fitch's concerns about fiscal challenges associated with the dislocation caused by the coronavirus pandemic and related containment measures. Fitch anticipates meaningful declines in revenues including earnings taxes, which comprise 44% of general fund revenues, due to the significant increase in unemployment claims. Fitch believes the city's financial operations may be challenged in this environment given limited independent ability to increase revenues, just adequate expenditure flexibility and a moderate level of reserves."
Here's how finance leaders estimate this town's economic game going forward . . .
"The city reports an estimated $30 million - 4% of general fund - revenue shortfall in fiscal 2020 due to a city extension of filing and payment of earnings taxes to July 15, 2020 from April 15. The city believes that it will recoup 85%-90% of earning tax revenues lost due to late filing in fiscal 2021 (fiscal year ending April 30). As a result, the city is expected to use a portion of emergency reserves to cover the lag in revenue receipts. The city maintains a pooled investment portfolio valued at $1.2 billion, which provides a significant source of liquidity. Unemployment benefits are not subject to the earnings tax. The city has seen a spike in unemployment claims, which is expected to have a negative impact on earnings taxes in fiscal 2021 and will likely result in expenditure reductions and the use of general fund reserves. The city has seen significant revenue declines in convention and tourism-related enterprises, which the city believes may require general fund subsidies throughout the city's five-year fiscal plan."
A hot take . . .
THIS HOPEFUL ECONOMIC OUTLOOK STILL DOWNGRADES KANSAS CITY'S ECONOMIC OUTLOOK & HINTS AT HIGHER TAXES!!!
The encouragement for "expenditure reductions" would help the economic crisis in the making but so far we've seen very little control over spending from the Mayor & Council who have approved more funding for developers, the streetcar and and city services since the start of the COVID-19 lockdown.
A GOP Super-Majority State Legislature in Jeff City, MO has proven to be the only backstop for more tax increases but a quick look at these numbers reveal the increasingly desperate need for cash in Kansas City that only looks to grow worse going forward.
Developing . . .