September 17, 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.

 


  • stillsleepyeyes

    Well the unemployment is going to get higher once camaco pulls out of town ……………… then try to find one of those rep’s from the union to help you out……….

  • Sis Delish

    Pension costs, eh? Promised more than can be delivered?

    Not very good credit risk if monies borrowed go to pay for future payouts which the City has absolutely no way of funding from current revenue levels.

    Take the $1.2 Million and buy Lottery Tickets. Just a suggestion.

  • SniperFire

    The rest of the State outside of the Cleveland Lorain/Elyria Democrat dependency sheetholes are doing great, Evan. Please do your readers a favor and report on it sometime.

    Ohio added a whopping 12,600 jobs last month and the unemployment rate just dropped to 5.7%. Why not tell the story?

    • Phil Blank

      5.7% unemployment, look at the other side of that number.
      Thats 94.3% employment of those eligible and working.

      • stillsleepyeyes

        bahahaha…….the number game…………..really this can’t be true……….94.3% working??????? if so where is the government assisted numbers………..are they included in the unemployment????

  • alreadyfedup1

    It’s a (D) city so let them pay. Remember it’s not THEIR money it’s your money they just spend it like drunken sailors .

    • golfingirl

      One difference:
      Even drunken sailors have to stop spending when they run out of money.

      The Government just keeps spending! Putting it on the taxpayer’s credit card.

  • GreatRedeemer

    I’m more concerned with these aspects of the report.

    Above average debt burden, with plans to borrow more. A lot of
    new city equipment around that has been leased instead of bought.

    If Spitzer Great Lakes does not pay the GOLT bond debt
    service the city has insufficient reserves in the bond account to pay it.

    13% of revenue are going to pensions

    Exposure to underfunded cost- sharing pension plan causes
    some short term risk.

    • stillsleepyeyes

      Don’t worry they always have the water department money to take from and raise the rates (because they can do it without a vote)………………..that’s how they roll the dough……………..