S&P Global Ratings has recently revised the outlook to positive from stable and affirmed its ‘A’ long-term ratings on the City of Cleveland’s previously issued non-tax revenue bonds, series 2010 refunding certificates of participation (Cleveland Stadium Project), and series 2010 annual appropriation bonds (Flats East Project).
“This is an exciting time in the City of Cleveland and it is under the leadership of Mayor Frank G. Jackson and the great working partnership with Cleveland City Council and President & Finance Chair, Kevin J. Kelley that we have been able to focus on strong fiscal management and long term planning, which led to this upgrade,” City of Cleveland Finance Director Sharon Dumas said.
She added, “Over the last 12 years the city has managed conservatively and as a result of same, has maintained flawless audits from the State of Ohio and accolades and inquiries from other municipalities. One cannot applaud the recent success of the City of Cleveland, without first acknowledging the consistent, strong and detailed fiscal management that resulted in 12 years of a balanced budget in the face of significant cuts at the state and federal levels.”
While the city’s population has declined, the rate of decline has lessened, and S&P believes that the city’s finances are somewhat insulated from the decline given that 90% of the city’s income tax revenue is generated from nonresidents and business profits. In addition, while S&P said it views the city’s pension liability as a credit risk, the city’s history of strong fiscal management and focus on long-term planning should help to mitigate potential pressures from this liability.
“The outlook revision reflects our view that Cleveland’s credit quality is improving as a result of the city’s ongoing economic recovery, its recent track record of surplus operations, and the successful passage of an income tax rate increase in November 2016,” said S&P Global Ratings credit analyst Benjamin Gallovic.
The ratings reflect our assessment of the city’s:
- Very weak economy,
- Very strong management,
- Adequate budgetary performance,
- Very strong budgetary flexibility,
- Very strong liquidity,
- Very weak debt and contingent liability position, and
- Strong institutional framework score.
The positive outlook reflects S&P’s view that the ratings could be raised within the two-year outlook horizon if the city’s economic growth persists, the population decline continues to subside, and the city’s financial performance remains strong in light of potential budget pressures. The city’s very strong financial management and the anticipated growth in income tax revenue also support the outlook.