CHICAGO - Toledo, Ohio, struggling with the toll auto industry job losses have taken on its coffers, lost its A-level rating yesterday from Moody's Investors Service.
Moody's downgraded the credit to Baa1 from A3 on $125.4 million of limited-tax debt and to Baa2 from Baa1 on $47.8 million of non-tax revenue debt and assigned a negative outlook to the credits, a signal that even at the lower rating the city could face further action.
"The Baa1 rating and negative outlook reflect the city's narrowed financial reserves, despite moderate gains in financial position in recent years," Moody's analyst wrote, noting that the city's primary revenues sources are dependent on employment levels tied to the weakening auto industry.
Toledo has made progress in diversifying its job base, but Chrysler LLC's Jeep Corp. is still its largest manufacturing employer. The company has reduced its headcount in the city by half over the last year and the city's unemployment rate hit 12.6% in March. The impact of Chrysler's bankruptcy and buyout by Fiat is yet to be determined, analysts wrote.
The rating action was prompted by the release of fiscal 2008 results that showed a narrowing of reserves beyond initial expectations as the city sought to cope with an $8 million general fund shortfall. Toledo's budget stabilization fund fell to $2 million in fiscal 2008 from $6.2 million a year earlier and its general fund reserve fell to $4.5 million from $8 million, a narrow 1.9% of general fund revenues.
A 9% decrease in income tax collection in fiscal 2008 over a year earlier due largely to unplanned idling of workers at the Jeep and GM Powertrain facilities was a primary cause of the drop, analysts wrote. Both facilities are among the top 10 income tax producers for the city and also drive employment trends at local supply companies.
Toledo carries an A rating from Standard & Poor's.
