KC's sky-high debt: Paying a big price for falling behind
The Kansas City Star
Kansas Citians have taken on staggering amounts of debt in recent years with hefty mortgages, multiple credit cards and costly student loans.
But here’s something most residents don’t consider while toting up their IOUs.
Borrowing by City Hall to pay for everything from a bigger Bartle Hall to new water lines to taxpayer-subsidized economic development projects (hello, Power & Light District), means every man, woman and child in the city also is burdened with additional debt.
Kansas City’s overall outstanding government debt of $2.32 billion works out to $5,028 owed by every resident. That’s the second highest load when stacked up against 10 other peer cities (see chart).
The nation’s influential bond ratings agencies are noticing, too.
Fitch recently lowered its outlook on Kansas City’s finances to “negative,” citing in part the city’s “already high debt burden” as well as its plans to add to that load.
Moody’s places Kansas City’s bond rating below seven of its 10 peers and higher than only St. Louis.
The Citizens Commission on Municipal Revenue has reviewed these issues while working through its recommendations to elected officials on how to fairly spread the tax burden. Several disturbing realities have popped up in these conversations.
Even after borrowing billions of dollars, the city has had to slash its basic services the last few years, has failed to maintain many roads and bridges and still has lots of expensive projects on its to-do list.
But instead of urging the city to shed some debt, the panel at its meeting Monday will move closer to endorsing ideas that later this year would request even more borrowing by taxpayers.
The projects include a $2.5 billion sewer upgrade plan and Mayor Sly James’ proposed $1 billion infrastructure program. Plus, the city is reviewing plans to borrow lots of money for a downtown streetcar line and a new convention hotel.
To be clear, taking on debt can be cost-effective, especially when interest rates are low. Also, the city has borrowed to finance much-needed projects, such as Sprint Center and sewer and road improvements in the Power & Light District.
Not all debt is created equal, either. Voters have passed taxes and fees to pay for many — but not all — of these projects.
However, Kansas Citians now are paying a big price for years of failing to invest in better infrastructure.
City officials, for instance, did not approve adequate water and sewer rate increases in the prior decade to pay for more system improvements on a “pay as you go” basis. Instead, the city fell behind on its projects, is now jacking up rates by double digits and must borrow even more to take care of needed upgrades.
In addition, the city failed to ask voters for adequate revenues to pay for issuing some debt.
These “no tax increase” elections were easier to pass, such as the $300 million in bonds endorsed in 2004 for capital improvements, zoo maintenance and Liberty Memorial expansion. But the city has had to cut millions in spending on parks, public safety and other services to free up money for that long-term debt.
Going forward, the city must carefully calculate tax hikes to fully finance future debt; wisely, that’s what the citizens panel is expected to do with James’ $1 billion program.
City officials must face the sobering reality they will have to provide really good evidence to persuade taxpayers to take on large amounts of new debt.