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State and Local Government / Budget and Spending

Bad for Borrowing: Saint Louis Bond Ratings Slip

By Joseph Miller on Aug 20, 2015

Recently, Moody’s, a prominent credit rating group, downgraded Saint Louis’s debt rating.  While the changes are nothing drastic (and the city’s outlook is stable) a lower credit rating may raise the cost of major projects in Saint Louis.

                The recent downgrade saw Saint Louis’s general obligation debt rating fall one notch, from Aa3 to A1. That still leaves the city with a rating denoting an upper-medium investment grade, even if the rating is well below prime. And as some news sources have pointed out, that means Saint Louis’s rating is higher than Chicago’s or Detroit’s. Unfortunately, if we don’t compare Saint Louis to cities exiting or very likely entering bankruptcy, its rating is relatively low, as the chart below demonstrates:

City

2015 General Obligation Debt Rating

Oklahoma City

Aaa

Indianapolis

Aaa

San Francisco

Aa1

Minneapolis

Aa1

Phoenix

Aa1

Seattle

Aa1

Dallas

Aa1

Portland

Aa1

Atlanta

Aa2

Memphis

Aa2

Washington, DC

Aa2

Kansas City

Aa2

Houston

Aa2

Baltimore

Aa2

New York City

Aa2

Nashville

Aa2

Denver

Aa2

Cleveland

A1

Saint Louis

A1

San Diego

A1

Philadelphia

A2

Detriot

A3

Chicago

Baa2

 

               

                A lower bond rating can lead to higher borrowing costs. In the same way that an individual with a low credit score might have to pay higher interest rates on a car loan or a mortgage than someone with a great credit score, a lower rating for a city can mean it has to pay more to borrow. As cities regularly borrow money to make civic improvements, the higher cost of borrowing means residents pay more for large projects like, say, a football stadium. Speaking of stadiums, the rating for nonessential debt (read: convention center and stadium) issued by the Saint Louis Municipal Finance Corporation was also downgraded, to A3. That corporation would responsible for issuing bonds for a new stadium.

                The primary reason for Saint Louis’s weak credit rating is the city’s “weak socioeconomic profile,” which is admittedly difficult for city leaders to fix. However, there are ways city hall could work to increase the city’s bond rating. According to Moody’s, the city is too reliant on the earnings tax. In addition, the city could boost its rating by making an effort to reduce total debt. Unfortunately, with the city prepared to go even further into the red to build a billionaire a new football stadium, it may be a while before Saint Louis can brag about its credit rating to people who don’t live Chicago. 

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Joseph Miller

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