In a report released this week, Fitch noted that the “downgrade reflects reduced financial flexibility, concerns about the county’s ability to consistently balance its budget, and signs of potential economic weakening. Further budget adjustments may be challenging given limited revenue-raising capacity and expenditure flexibility.”
County Commissioner Ted Kalo said if the county goes out for additional loans, it likely will mean fractionally higher interest rates, which can add up when it comes to millions of dollars in borrowed money.
Kalo said he was disappointed by the decision, which drops the county’s rating on its $21.6 million in limited tax general obligation bonds from an “AA” rating to an “AA-” rating.
The county also saw its rating fall from “AA-” to “A+” for its $790,000 for the county Port Authority bonds and from “AA” to “AA-” for the county’s implied unlimited tax general obligation pledge, although the county doesn’t have any of those bonds.
County Administrator Jim Cordes said the only piece of bright news in the bond rating evaluation is that the county’s rating outlook was rated “stable.”
Kalo said a key factor in the downgrade seems to have been the county’s recent decision to take out roughly $2 million in loans to cover capital improvements ranging from roof repairs to the purchase of new vehicles.
“When we start borrowing for mundane operations that in the past we have always paid cash for, they don’t look kindly on that,” he said.
The commissioners have struggled for years with dropping revenue, including hits to interest income and reduced funding from the state. Their efforts to convince voters to support a sales tax hike have failed at the polls.
The Fitch report also said that the Lorain County Jail has had an operating deficit for years. Jail operations are funded through a dedicated 0.25 percent sales tax and supplemented by the county’s general fund.
In terms of the county’s economic weakening, Fitch pointed to the decline of the assessed value of property in 2012 and “some local layoffs suggest some stall-out in the local recovery.”
While the report said that the county’s May 2014 unemployment rate of 6.6 percent was down from a year ago, it is still above the national and state averages. Unemployment in the county was below the national average through much of the recession.
“Local unemployment will likely remain elevated given recently announced layoffs at TeleTech and reductions at the Ford plant, the county’s biggest employer,” the report said. “However, Fitch believes that some degree of long-term economic stability comes from the several hospitals in the county, which have completed expansions in recent years, as well as Oberlin College.”
Kalo said the county’s other bond rating, provided by analytics firm Moody’s, remains unchanged at “AA+.”