CHICAGO — Fitch Ratings boosted its outlook to positive from stable on Cleveland, Ohio, saying the outlook reflects improved financial operations and an increase in reserves.
Fitch also April 2 affirmed its A-plus rating on the city's outstanding limited-tax general obligation bonds, which total roughly $112 million.
"The rating could move into the AA category over the near term if the city continues to demonstrate maintenance of healthy operations and reserves," Fitch said.
One of Cleveland's challenges is its reliance on economically sensitive income taxes, which make up about 60% of its general fund revenue, analysts said.
Despite the recent loss of population and above-average unemployment rates, the city has reported general fund surpluses for four consecutive years, according to Fitch. It has also added money to its rainy day fund, which it hopes to boost to 5% of general fund expenditures within the next three years.
"Given management's history of prudent financial management, Fitch expects the 2015 year-end balance to significantly exceed budget with the city continuing to maintain adequate reserve levels," the report said.
A new convention center/medical market, owned by Cuyahoga County and located in Cleveland, is one of a handful of projects driving economic development, Fitch said.
The city expects to retire 65% of its debt within 10 years. Its overall costs for debt service, pensions and retiree health care is "manageable" at 18.5% of government expenditures, Fitch said.