December 21, 2014

Elyria
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Moody’s doesn’t upgrade Lorain bond rating

LORAIN — After 11 years, the state in October removed Lorain from fiscal watch, but city finances remain precarious, according to Moody’s Investor’s Service.

Despite the removal, Moody’s didn’t upgrade Lorain’s A3 bond rating.

“While the city has been able to maintain its reserve position in recent years, the use of one-time revenue enhancements and the persistent structural gaps puts the city’s narrow financial reserves at risk,” said an analysis released Thursday. “Closure of fiscal year 2014 below expectations would likely impair the city’s financial position and put pressure on the credit rating.”

Bond ratings determine how much it costs taxpayers when a city borrows for improvements like road projects or water plant upgrades. Lorain has an approximately 4 percent interest rate on 20-year bonds, according to Auditor Ron Mantini.

An improved rating could reduce interest on a bond by about 0.5 percent. For a 20-year, $5 million bond, taxpayers might save as much as $200,000 over 20 years.

The analysis said the rating primarily was due to Lorain’s “moderately-sized tax base with below average income levels.” It attributed conditions to the national economic decline in recent years and long-term deindustrialization, such as the 2005 Ford Motor Co., plant closing and significant steel industry cutbacks. Other factors cited:

  • Lorain’s high unemployment rate, which was 11.2 percent in January compared with the Ohio rate of 6.9 percent and the national rate of 6.7 percent in January.
  • Lorain’s 2012 pension liability of $130 million, which is more than four times higher than the $31.6 million general fund budget.
  • Cuts in state taxpayer aid to local government, such as the $1 million cut to Lorain in 2012.
  • Reliance on one-time revenue, such as lawsuit settlements, to plug deficits and a projected deficit of roughly $1 million in 2015.

Mantini said he had hoped the rating — which has been A3 since at least 2011 — might be upgraded. However, he said he said he understood Moody’s concerns.

“Finances are tight this year,” he said. “Finances are going to be tight next year unless something miraculous happens with jobs.”

Mantini said Lorain won’t receive a one-time $1.2 million lawsuit settlement payment next year. The payment was part of a settlement with a Cleveland law firm and connected to former Lorain Community Development Director Sandy Prudoff convicted on federal corruption charges in 2012.

However, Mantini said less money is needed for the $1 million rainy day fund, fewer one-time expenses, more money expected from the recycled steel byproducts at the former RTI steel site and more taxes from the Republic Steel expansion should eliminate the projected deficit.

While not upgrading the rating, Mantini noted Moody’s did not designate a negative outlook for Lorain.

Mantini said the ongoing $20 million capital improvement plan by Mercy Regional Medical Center, an expansion at auto parts manufacturer Camaco and possible future lakefront development are all positive signs.

He said an upgrade could occur if Lorain can show a financial positive outlook for two or three consecutive years.

Contact Evan Goodenow at 329-7129 or egoodenow@chroniclet.com.