Hamilton Drops to Aa3

Moody’s Investors Service this week downgraded to Aa3 from Aa2 the general obligation debt held by Hamilton County — which includes Cincinnati — as the county faces a number of economic challenges, including deep dips in key revenue sources.

The downgrade comes as the county plans to sell $8.8 million of various-purpose GOs this week, part of which will be used to fill a current budget deficit.

The outlook is stable at the lower rating level.

While noting that the county has a diverse and substantial economy, Moody’s analysts said the area is facing a number of economic challenges. It has not released a formal audit since 2003 due to an ongoing dispute over accounting and management practices in its social services department.

Revenue projections as of May indicate a budget gap that could deplete the county’s remaining reserves, bringing the 2008 undesignated budgetary reserve to negative $697,000, Moody’s said. That deficit puts the county in danger of entering fiscal emergency.

The county’s sales tax, its main revenue source, has grown only 1.9% on average annually between 2002 and 2007, compared to an average annual growth of 7.4% in the previous 30 years. On the positive side, analysts said officials have undertaken a number of strategies to overcome financial challenges, including cost reductions and frequent budget monitoring.

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