U.S. Credit Ratings Downgrade May Whack City, County Borrowing Costs

As politicians in Washington D.C. point fingers at each other following the downgrade of the U.S.’s credit rating on Friday by Standard & Poor’s, cities and counties watch and wait to see if the market turmoil will hit locally.

St. Louis County, which has a AAA credit rating on $37.9 million in general obligation bonds, plans to issue $23 million in new bonds on Tuesday.

“It would be foolish to say that we aren’t concerned,” said Mac Scott, a spokesperson for the county.

“But what are our choices? We need the money.”

The tax anticipation bonds, which are rated AA+, will be used for cash flow purposes and will most likely be repaid in a year, Scott told Missouri Watchdog.

As the other two major credit rating agencies consider downgrading the long-term debt of the  U.S., municipal bonds, including issues for cities, counties and states, across the country will be reviewed.

“We don’t know what the S&P downgrade is going to mean for us, or for the U.S. for that matter,” Scott said.

“If St. Louis County gets downgraded from AAA, it’s going to cost us more to operate.”

Maryland Heights, a suburb in St. Louis County, does not have any debt, said Mark Levin, city administrator.

Casino tax revenue is used to pay for infrastructure projects. Other projects are paid for with savings and cash.

The city did borrow $12 million to build a new government center.

“We paid off the bonds when it became clear the interest we would receive from investments would be far less than what we were paying on the bonds,” he told Missouri Watchdog, noting the bonds were paid off in 2009.

A significant drop in the market, however, may increase the city’s pension costs, Levin said.

Maryland Heights participates in the Missouri Local Government Employees Retirement System, which covers more than 30,000 members. A key variable in the plan’s investment projections are tied to market performance.

Chesterfield is not listed as a member of the statewide pension fund or LAGERS, its acronym.

However, the financial advisor for Maryland Heights is Joy Howard, who works with WM Financial Strategies.  At the moment, she said, she does not expect municipalities to delay projects because interest rates are low.

“However, I think it is far too soon to make any predictions,” Howard told Missouri Watchdog.

School districts may also face higher borrowing costs, said Vicki Englund, a director of the Lindbergh Schools Board of Education in south St. Louis County. ”We take the economic strength of our country for granted.”

The former state representative, who is running again in 2012, said the blame game will turn off most people.

“And that is what turns your average person off from the beginning,” she told Missouri Watchdog.

“It causes them to stop paying attention to the boy who cried wolf, just when they should be listening the most.”