Cleveland’s municipal financial strategies are set to take center stage with the upcoming launch of two significant bond offerings this month. The first, a general obligation bond issue aimed at raising approximately $64.395 million, focuses on bolstering public infrastructure. This includes enhancements to public facilities, parks, recreational buildings, bridges, and roadways. Following closely is the issuance of $90 million in water revenue bonds, slated for pricing on October 16. This second issuance aims to fund crucial capital projects while enabling the city to manage existing bond obligations effectively through a tender offer.
The general obligation bonds, designated Series 2024A, are being led by Huntington Capital Markets, supported by municipal advisors Government Capital Management and Phoenix Capital Partners. Legal counsel for the bond transaction is being provided by Squire Patton Boggs, LLP. According to Betsy Hruby, the city’s debt manager, the set pricing dates for both issuances are confirmed unless an extraordinary market event intervenes.
From the perspective of credit ratings, these bonds hold respectable standings. Moody’s Ratings has assigned an Aa3 rating, while S&P Global Ratings has issued an AA-plus rating, both with stable outlooks. This solid credit standing is backed by a pledge of ad valorem property taxes and municipal income taxes up to a ten-mill limit, a crucial mechanism in securing investor confidence.
The allocation of funds from the GO bond proceeds is designed strategically, with roughly $24.92 million earmarked for bridges and roadways, and further allocations toward enhancements in public facilities, parks, and public safety infrastructure. A notable focus is on the acquisition of heavy-duty trucks, which reflects the city’s commitment to modernizing its service capabilities while ensuring the public’s welfare through improved facilities.
As Cleveland prepares for these bond issuances, its general fund balance has a notable fluctuation. It was reported to be $46.3 million in 2023, a decrease from $48.3 million in 2022. Despite this decline, it remains above pre-pandemic levels, indicating a semblance of stability during challenging times. Most of this revenue is generated from the city’s 2.5% income tax, which is expected to see an increase of $14.1 million in receipts for 2024 compared to 2023.
However, Cleveland’s financial health is not devoid of obstacles. Moody’s noted particular constraints related to income levels within the municipality, which hover just above half the national median, alongside elevated poverty rates. The population decline in recent years adds another layer of complexity. However, the presence of non-resident commuters contributing to the tax base mitigates some of these challenges, thus providing a revenue cushion from those earning higher incomes.
The city’s financial maneuvers, particularly in the wake of pandemic relief aid, seem relatively robust. Cleveland has managed to pass a balanced budget for fiscal 2024, an achievement underscored by positive expenditure variances and growth in income tax receipts, leading to a sustained trend of annual general fund surpluses since 2016. Such disciplined financial management has instilled confidence among credit agencies, as both Moody’s and S&P articulate a strong outlook tempered by existing risks.
Parallel to the GO bonds, the Series 2024HH water revenue bonds are set to make considerable strides in funding improvements for Cleveland’s waterworks system. The proceeds from this bond issuance will facilitate treatment plant enhancements and other infrastructural advancements. While these bonds lack a debt service reserve fund, they carry a high Aa2 rating with a positive outlook from Moody’s, positively influenced by robust liquidity and solid coverage ratios.
Jenny Poree from S&P emphasizes the significance of “unrestricted liquidity” when addressing operational uncertainties tied to utility management. The financial sustainability of Cleveland’s water utility—serving about 1.4 million residents—relies on its healthy reserve levels, which provide flexibility against market unpredictability and resource allocation challenges.
Simultaneously, the necessity for rate increases must be managed delicately, particularly given the city’s elevate poverty rates. Addressing potential affordability issues is critical, and management appears cognizant of these risks, implementing targeted programs to support vulnerable communities.
As Cleveland approaches these bond offerings, the emphasis on community upliftment through infrastructure investment is palpable. While the city navigates the complex landscape of financial management marked by past pandemic influences, it demonstrates a resilient approach. With rigorous planning and a commitment to transparency, Cleveland is poised to tackle its fiscal future, reinforcing its infrastructure while aiming for equitable growth and economic rejuvenation within the community.