Another indication of City’s improving financial situation

 CINCINNATI – The strength of Cincinnati’s economy received strong reinforcement this week with the release of an upgraded bond rating for the City of Cincinnati.

The bond credit rating agency, Standard & Poor (S&P), has improved the City’s current rating on its unlimited-tax general obligation debt to AA. This rating had been AA-. Last year, S&P upgraded the City’s outlook to stable.

"When we took office we faced 800 million in pension liability and had been downgraded by the rating agencies for the first time in a generation," said Mayor John Cranley. "Within 3 years we have shored up the pension, balanced the budget and have now earned an upgrade. We are getting the City's financial house in order." 

The complete agency rating reports may be found here.

“This is a team endeavor and I am grateful for the strong support we continue to have from the Mayor and City Council and the hard work among our staff. We intend to keep this going. Bond ratings like these allow us to improve assets and ultimately lead to a better Cincinnati,” said City Manager Harry Black. “The City stands on solid financial ground and these ratings will provide more opportunities to build on this strong foundation.”

In the last two years the City leadership has made shoring up the City finances through Fiscal Sustainability & Strategic Reinvestment a top strategic priority. With strong support and clear direction from the Mayor and City Council the City has:

• Implemented a strategic Fund Balance Stabilization Policy to build the City’s cash reserves.

• Codified Debt Policies
• Operationalized a comprehensive performance management program aimed at enhancing customer service and improving operational efficiency.
• Implemented a sweeping capital acceleration project to modernize the City’s roads and fleet saving million over the next 12 years in maintenance costs.
• Worked to negotiate and implement an historic pension settlement.
• Codified Investment Policies.

“This is great news for the City and serves as a strong sign of Cincinnati’s improved economic position,” said City Manager Harry Black. “We are strategically positioning ourselves for long-term success.”

These rating levels make it easier for the City to borrow money to finance major projects and at a lower interest rate. It also suggests that the City’s bonds are more attractive and stable for investors.

When looking at the City’s entire debt portfolio, this upgrade if sustained could potentially result in debt service savings of between $4-12 million over the next 20-25 years.

As a further testament to the City’s strong financial position last week analysts from Moody’s Investors Service reaffirmed the City’s general obligation bond rating of Aa2. Moody’s financial outlook for the City remained in the stable category.
 

About the S&P Upgrade

In their report S&P indicated the upgrade reflects the City’s improved budgetary performance and very strong management. Specifically, the report provided the following assessment of various factors for the City that influenced the final rating as follows: 

• Very strong management, with strong financial policies and practices under S&P’s Financial Management Assessment methodology.

• Strong budgetary performance, with a slight operating surplus in the general fund and an operating surplus at the total governmental fund level in fiscal 2015.
• Very strong budgetary flexibility, with an available fund balance in fiscal 2015 of 21% of operating expenditures.
• Very strong liquidity, with total government available cash at 13.2% of total governmental fund expenditures and 125.2% of governmental debt service, and access to external liquidity we consider exceptional.
• Very weak debt and contingent liability position, with debt service carrying charges at 10.5% of expenditures and net direct debt that is 80.3% of total governmental fund revenue.
• Strong institutional framework score.

 

About the Moody’s Rating

Moody’s affirmed the Aa2 rating on the City’s General Obligation Unlimited Tax (GOULT).

Moody’s considered the city’s improvements in areas such as labor market and demographic trends, as well as Cincinnati’s “healthy financial profile, manageable debt burden relative to revenue, and an elevated pension burden following recent reform.

The report lists various strengths the City has working in its favor:

• Diverse regional economic center anchored by numerous corporate headquarters, healthcare organizations and higher education institutions.

• The city's revenue base extends beyond its own borders given an income tax that is levied on nonresidents working within Cincinnati.
• Generally Accepted Accounting Principles (GAAP)-basis reserves remain healthy and growing income taxes will aid management's plan to improve the city's financial position.
• Successful implementation of the Cincinnati Retirement System (CRS) settlement agreement and transfer of excess OPEB plan assets recently reduced the City’s pension burden.