CHICAGO - Fitch Ratings recently revised its outlook to negative from stable on Summit County, Ohio, as the county faces dwindling revenues from sales and property taxes amid a weak regional and national economy.
Fitch also recently affirmed its negative outlook on the small city of Norton, located in Summit, which faces major fallout from the failing U.S. automobile industry. Auto industry-related jobs account for about 40% of the employment base in Norton, analysts said.
With Akron as its county seat, AA-rated Summit County benefits from strong general fund reserves, a below-average debt burden, and a growing service sector that is slowly replacing the area's long-time manufacturing base, according to analysts at Fitch.
But analysts warned that the county's financial position could be strained under a continuing economic slowdown that has already led to diminished sales tax and property tax revenues. The county's 6.5% sales tax makes up the majority of its general fund.
In addition to shrinking revenues, the county saw a $3 million decline in investment earnings that typically bring in about $11 million annually, according to local press reports. And building permit fees declined $500,000 to $1.3 million in 2008.
Fitch's outlook revision comes a week after Summit officials last week passed a $338 million 2009 budget that featured a 5% cut across all county agencies. The general fund was reduced to $115.6 million for 2009 from $122.3 million last year, according to local reports. The county's cash reserves will total roughly $25 million in 2009, reports said.
"The negative outlook reflects a demonstrated and projected downward trend in general fund balances that remains vulnerable to sales tax performance, the county's largest revenue stream, and property tax receipts with declining collection rates," Fitch analyst Jessalynn K. Moro wrote in a release on the revision. "Financial management is strong, but significant deterioration from forecasted results could create negative pressure on the rating." The county will likely need to implement spending cuts or raise taxes or fees in order to stabilize its financial position, Moro added.
It is unclear how the county's fiscal situation will affect capital projects. Earlier this year, County Executive Russell Pry announced a six-year capital plan that includes $15 million to finance a series of promised improvements for Goodyear Tire and Rubber Co. One of the area's largest employers, Goodyear recently announced its decision to stay in Akron and build a new world headquarters there.
Other capital projects include a new animal control facility, a new sheriff's administration building, and an expansion of the sewer system.
County officials may revise the 2009 budget through next year depending on revenue collections. Summit is managed by three elected commissioners, a county executive, and an 11-member County Council. Standard & Poor's maintains a AA rating with a stable outlook on the county.
Meanwhile, Fitch last week affirmed its A rating and negative outlook on the outstanding limited-tax general obligation debt held by the city of Norton, which is also located in Summit County. The town enjoys an adequate fund balance, diverse revenue stream, and limited debt burden, analysts said.
But it faces major fallout from the failing automobile and automobile parts manufacturing industries, as well as car dealerships, Fitch said.
J.R. Wheel, an aluminum-wheel manufacturing subsidiary of B&C Corp., accounts for 30% of the city's total employment, while a regional car dealership accounts for another 8%, analysts noted.
"It is Fitch's assessment that the continued decline of the auto industry could have a negative impact on the city's current economic condition," wrote analyst Drake Richey.
In addition to providing jobs, the auto industry-related companies provided just under 12% of the city's income tax revenues in 2007. Norton's income-tax revenue, which makes up more than 60% of its general fund, is boosted by a policy that levies the tax on both residents and nonresidents who work in the town, Fitch said. With a population of 11,500, Norton is located southwest of Akron.