Platte County, Mo., home to Kansas City, may default as early as tomorrow if it fails to make a bond payment on a long-struggling shopping development.
County officials are questioning the value of covering the $1 million shortfall that’s due Dec. 1, noting that they are not legally obligated to help out the beleaguered Zona Rosa retail center.
But that resistance has come at a cost. Credit agencies have already punished the county just for considering not stepping in, with multiple downgrades into junk bond status.
At issue is the fact that the Zona Rosa was financed using bonds that were to be repaid with dedicated tax revenue from the development. But the project had the misfortune of opening in the middle of the Great Recession and has struggled with high vacancy rates for years. Tax revenue has consistently fallen short of expectations.
County officials argue that taxpayers shouldn’t have to pick up the tab. But the downgrades, says Municipal Market Analytics’ Matt Fabian, are already costing taxpayers. That’s because it will now be more expensive for the county to borrow money the next time it issues general obligation bonds in the municipal market. And Platte County is also extremely unlikely to find future buyers for any revenue debt that depends on an annual appropriation from the government.
… the fact that Platte County is being downgraded even before an actual default signals that credit agencies are becoming increasingly aggressive about punishing localities for walking away from debt — even when they are legally allowed to.
(Read more: GOVERNING)