CHICAGO — Fitch Ratings downgraded Akron, Ohio, as the city prepares to hit the market Monday with a $76 million general obligation borrowing as part of its annual debt issuance to finance capital projects.
The issue includes a mix of federal stimulus bonds and tax-exempt new money and refunding bonds.
The finance team had originally planned to issue $96 million of debt, but dropped one refunding series after the savings evaporated amid rising interest rates.
Akron will follow Monday’s sale with a $7.4 million recovery zone economic development bond issue, marking the city’s full allocation.
Monday’s sale includes $24.3 million of Build America Bonds, $23.4 million of tax-exempt bonds, and $28 million of refunding bonds. Original plans called for $46 million of refunding bonds.
Stifel, Nicolaus & Co. and PNC Capital Markets LLC are underwriters. Robert W. Baird & Co. is financial adviser.
Fitch rated the debt AA-minus and lowered its ratings to AA-minus from AA on the city’s limited-tax GO debt. The agency also downgraded $22.2 million of certificates of participation to A from A-plus. It affirmed its AA-minus rating on $193.6 million of income tax-backed bonds.
The outlook was revised to stable from negative.
Moody’s Investors Service in October 2009 downgraded Akron’s GO debt to A2 from A1 and its income tax-backed debt to A3 from A2. Moody’s recalibrated the city’s GO rating to Aa3 in April 2010. Standard & Poor’s rates the GOs AA-minus.
Fitch’s downgrade is due largely to reduced general fund reserves — Akron has suffered general fund deficits for four of the past five years — and the difficulty the city will likely have building the reserves back up again amid a weak economy. An “aggressive” borrowing program could contribute to future pressures, Fitch said.
Akron relies on income tax receipts, a notoriously volatile revenue source, for more than half of its general fund.
City officials said they were in the midst of crafting a 2011 budget that they hoped would build up reserves and that some 2010 tax revenue is coming in higher than expected.
“We’re weathering the storm,” said Akron’s interim treasurer, Steve Fricker. “We have seen some reduction in our income tax revenue, as everyone else has,” he said. “However, we do think our taxes are going to exceed what we budgeted this year.”
The city had expected a 3% decline in tax revenue for 2010 and is now expecting a 2% drop, Fricker said. “We’re trying to put the pieces together and be able to build up our general fund balance a bit next year.”
Akron is 35 miles outside Cleveland and was known for years as the rubber capital of the world. The local rubber industry remains strong, but is now focused more on research than manufacturing, according to Fitch.