Some Cities May See Credit Risks As Remote Work Hits Their Bottom Lines
Remote work may have indirect financial consequences for some U.S. cities as lower earnings taxes prove a credit risk.
New data from Fitch Ratings, reported by Bloomberg, has already cited remote work as a credit risk for Kansas City, Missouri, which is expecting slow recovery on earnings taxes, its largest source of general fund revenue. Cities like Kansas City that could expect a future downgrade may issue bonds with higher yields to make up for it, according to Bloomberg Intelligence strategist Eric Kazatsky in the article.
Elsewhere, Cincinnati, Toledo and Columbus, all in Ohio, may also see lower revenue from remote work, per Bloomberg, because they rely on income taxes. Cincinnati makes 73.5% of its general fund revenue from income taxes.
“The uncertainty is the most important thing, because this is a once in a generation type shift that we’re seeing and I think there are a lot of people who are down playing it,” Tom Kozlik, head of municipal research and analytics at Hilltop Securities, told Bloomberg.
Dora Lee, director of research at Belle Haven Investments, said remote work isn't the only credit driver, but it's becoming increasingly relevant. But she added that cities can use a diversified economy to "reinvent themselves."
“Maybe people are not doing full time in the office, but if the sales tax figures and hotel tax revenues are still rising because of some of the other factors like tourism, then it might not be that big of a deal,” Li Yang, a credit analyst with S&P Global Ratings, told Bloomberg in a phone interview. “We don’t necessarily need to see office workers go back 100%.”
Lee also told Bloomberg that due to less commuting to large cities, small suburbs and towns could see economic growth, akin to the "flight to suburbs" that has been reported since the beginning of the pandemic.
