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CINCINNATI
Fl NAN CE
FOR YOUR INFORMATION November 28, 2012 To: From: Subject: Mayor and Members of City Council Milton Dohoney, Jr., City Manager
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Moodys Bond Rating Affirmed Standard and Poors Bond Rating Affirmed and Outlook Revised
The City of Cincinnati is preparing to issue $33.0 Million Urban Redevelopment Bonds (Streetcar) and $20.0 Million Refunding Bonds the week of December 3, 2012. In preparation for this sale a bond rating was requested from two primary rating agencies, Moodys Investor Service (Moodys) and Standard and Poors (S&P). The ratings received for this bond issuance were Aal and AA+ respectively, with S&P assigning a negative outlook. These ratings are one step below the highest rating of Aaa (Moodys) and AAA (S&P). As part of any bond rating prior bond issues are also reviewed. These ratings were also affirmed by both Moodys and S&P, with S&P revising its outlook to negative from stable. Moodys Report Overview The Aal rating is based in part on the Citys pressured but still satisfactory financial position, an economically diverse tax base, and demonstrated willingness to reduce expenditures to prevent depletion of reserves. Moodys cites as strengths: continued adherence to long-standing prudent financial policies, resumed growth of income tax revenue following declines in recent years, and ongoing public and private redevelopment throughout the city, among others. Moodys cites as challenges: reliance on economically sensitive income tax revenues for the majority (67%) of General Fund revenues, substantial budget gaps during recent fiscal years that required significant expenditure reductions, which may limit cost cutting options to address future pressures, and annual pension contributions that are well below actuarial requirements despite annual increases to contribution rates, among others. Factors that could change the rating up (or revise the outlook to positive): continuation of expenditure reductions and/or implementation of revenue enhancements that significantly grow reserves, economic expansion that leads to resumed valuation growth, among others. Factors that could change the rating down (or revise the outlook to negative): Negative budget variances in income tax revenues coupled with an inability or unwillingness to implement corresponding expenditure reductions or alternate revenue generators, further declines in liquidity and/or fund balances in fiscal 2013 to levels materially below fiscal 2012 reserves without further ongoing budgetary adjustments to reestablish ongoing operational balance, inability to enact long-term pension contribution strategy to improve funded status, among others. The outlook is stable, representing Moodys expectation that the citys diverse tax base and financial position will remain satisfactory in the near-to-medium term. Despite projecting a moderate General Fund deficit in fiscal 2012, they believe that the citys credit quality, while pressured, has not considerably weakened during the economic downturn. Managements ongoing economic redevelopment efforts, careful budget monitoring, and ability to respond to budgetary pressures by reducing expenditures should continue to mitigate the impact of stresses on key credit characteristics. However, they note that the citys current inability to meet required pension contributions
represents an ongoing point of budgetary stress which could lead to revision of the outlook if not addressed as part of the citys efforts to regain ongoing operational balance. Furthermore, the stable outlook reflects the expectation that the city will establish ongoing operational balance as it implements further budgetary solutions for both its 6-month fiscal year ending June 30, 2013, and for the subsequent fiscal year 2014 beginning July 1, 2013.
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