NEW YORK - Moody's Investors Service said it has affirmed the Aa1 on the city of Cincinnati, Ohio's $442.9 million general obligation unlimited tax bonds and the Aa2 on the city's $83.9 million economic development non-tax revenue bonds, and has revised the outlook to negative from stable.
The general obligation bonds are secured by an ad valorem property tax pledge, not limited by rate or amount. The economic development non-tax revenue pledge is secured by dedicated general fund revenues of the city and is notched once from the general obligation rating based on the legal provisions of the master and supplemental trust indentures governing all of the city's non-tax revenue debt, debt service coverage and the limited proportion of the dedicated revenues compared to the city's operating budget.
The negative outlook is also assigned to the Convention Facilities Authority of Hamilton County's second lien revenue bonds, series 2004. The second lien revenue bonds are notched from the city of Cincinnati's general obligation as the flow of funds includes the city's pledge to appropriate funds for the contingent city rent fund and revenue stabilization fund, which are available if the primary pledged revenue of city and county hotel taxes are insufficient to pay debt service.
The Aa1 general obligation rating is based on the city's historically stable financial position bolstered by a variety of sources of alternate liquidity and healthy funding of long-term liabilities and modest budgeted use of the city's working capital reserve (rainy day fund) in FY2010 that is in line with city policy.
The high grade rating also reflects the sizeable and economically diverse base that faces urban redevelopment challenges which the city continues to address with significant investment in economic development projects; and a favorable debt profile supported by healthy debt policies.
The negative outlook reflects the challenges of the current economic cycle which has affected the city's income tax collections, which makes up nearly two-thirds of general fund revenues. The magnitude of the economic challenges is demonstrated by the city's use of its rainy day fund to balance the FY2010 budget, which is atypical of the city's financial practices.
Favorably, the use is modest and does not violate city policy to maintain the fund between 5% and 8% of the general fund budget. Moody's believes that while it is notable that the city continues to adhere to its financial policies, the negative pressures caused by general economic conditions could increase over time and lead to further deterioration of credit quality.
