Tue July 16, 2013
Cincinnati's bond rating downgraded
Moody's Investors Service is downgrading Cincinnati's bond rating because of a new method for analyzing pension obligations.
The city's general obligations bonds are now rated Aa2 instead of the previous Aa1. Moody's also revised the city's outlook to negative.
The city manager said in a memo part of the new methodology incorporates an analysis of not only the Cincinnati Retirement System, but also Ohio Public Employees Retirement System and Ohio Police and Fire Retirement System.
Moody's is now calculating the potential liabilities of all three systems, instead of just the CRS, which the city manages.
The rating agency also cited the city's inability to enact a long-term pension contribution strategy and the city council's use of one-time sources in balancing the budget as concerns.
“The negative outlook reflects the expectation that the city will continue to face challenges in attaining structurally balanced operations, stemming from its unfunded pension liabilities and reliance on a number of one-time budgetary solutions in recent years,” the Moody’s report said.
The manager’s memo also said the city is a top tier credit with the third highest rating available even after the recent downgrade.
Moody's did say it believes the city's financial operations will remain fundamentally sound due to management's quick response to recent shortfalls and its demonstrated commitment to implementing budgetary adjustments to preserve fund balances within its minimum policy.
The manager said in the memo the Cincinnati Retirement Board is working on scenarios to address the system’s unfunded liability. That board is meeting on August 1st and any recommendations for changes would be presented to City Council for approval.