CHICAGO — Moody’s Investors Service yesterday downgraded and assigned a negative outlook to all of Cleveland’s outstanding debt, warning that a weak economy continues to pressure the city’s fiscal position.
Moody’s downgraded $326 million of outstanding limited-tax general obligation debt to A3 from A2. The agency also downgraded to Baa1 from A3 its rating on $65 million of non-tax revenue bonds, $116 million of income-tax backed debt, and $151 million of outstanding certificates of participation.
The outlook on all the debt was revised to negative from stable.
“The primary factor driving the downgrade is stress in the city’s finances, which has really been driven by declining income tax receipts,” said Moody’s analyst Sarah Engle.
Like cities across Ohio, Cleveland’s weak economy has meant a drop in income-tax revenue, its chief revenue source. Last year the city opted to dip into reserves to offset unexpected high declines in income tax collections rather than implementing cuts or raising new revenue, analysts said.
On the bright side, officials balanced the fiscal 2010 budget in part by cuts and fee increases — but “recovery in 2010 is not yet certain,” Engle wrote in a report on the downgrade.
“We will continue to closely monitor the city’s financial performance as further erosion of existing reserves in the current fiscal year could result in a financial profile that is no longer commensurate with the A3 general obligation rating,” Engle wrote.
Fitch Ratings assigns an A-plus to Cleveland’s GO debt. Standard & Poor’s rates it AA.
The rating action comes as Cleveland prepares to refund roughly $65 million of certificates of participation that in 2007 financed the Cleveland Stadium Project. The city will issue an additional $65 million of unrated COPs that will
be privately placed with Wells Fargo Bank NA.