Cleveland is set to return to the financial markets with significant bond offerings this month, reflecting the city’s continuing efforts to improve infrastructure and public services. This article delves into the details of both bond issuances, evaluates the city’s financial position, and discusses the implications for taxpayers and residents alike.
The first of the two upcoming bond deals involves approximately $64.395 million in general obligation (GO) bonds, which are scheduled for sale on Wednesday. These bonds aim to finance key projects that will enhance public facilities, parks, recreational buildings, and critical infrastructure including bridges and roadways. Shortly after, a second offering of $90 million in water revenue bonds is planned for pricing on October 16. Revenue from these bonds will be allocated to capital projects and will also facilitate the purchase of outstanding bonds via a tender offer.
The underwriting for the Series 2024A GO bonds is under the purview of Huntington Capital Markets, with municipal advisory roles filled by Government Capital Management and Phoenix Capital Partners. Legal counsel for the bond issuance will be provided by Squire Patton Boggs, LLP. Betsy Hruby, Cleveland’s debt manager, has stated that both pricing dates are firm, contingent on any significant market disruptions that may arise.
Cleveland’s financial outlook appears cautiously optimistic, supported by solid ratings from prominent credit agencies. Moody’s has assigned a rating of Aa3 to the GO bonds, while S&P Global Ratings has rated them AA-plus, with both agencies reflecting a stable outlook. The bonds will be backed by a pledge of ad valorem property taxes, which are limited to a ten-mill threshold, alongside municipal income taxes, highlighting the city’s reliance on these revenue streams.
A significant portion of the bond proceeds will be directed toward critical infrastructure projects—$24.92 million is earmarked for bridges and roadways, while $14.495 million will fund the construction and renovation of public facilities. Other allocations include $10.555 million for equipment acquisition and improvements to parks and recreational areas. Notably, Cleveland’s general fund balance, although declining over recent years, remains robust compared to pre-pandemic levels, indicating fiscal resilience amid challenges.
Cleveland faces several fiscal challenges, including a relatively low resident income ratio, high poverty levels, and ongoing population decline. These factors have been identified as constraints on the city’s credit rating. However, the city’s ability to generate significant income tax revenue—bolstered by a 2.5% income tax rate—provides a crucial safety net. Moreover, a projected increase of $14.1 million in income tax receipts for 2024 demonstrates positive growth expectations amidst economic recovery.
Moody’s Vice President Coley Anderson expressed confidence in the city’s fiscal management, noting Cleveland’s balanced budget for fiscal 2024 and a consistent history of annual general fund surpluses since 2016—a period that has benefited from voter-approved tax increases.
As Cleveland forges ahead, Hruby indicated that while there are currently no plans for additional GO debt, the city typically issues GO bonds annually. This regular engagement in the bond market underscores an ongoing commitment to bolster infrastructure while managing fiscal responsibilities.
Water Revenue Bonds and System Performance
The upcoming Series 2024HH water revenue bonds will focus on improving Cleveland’s waterworks system. These bonds will address necessary enhancements at treatment facilities and secure funding for operational needs. Moody’s has rated these bonds Aa2 with a positive outlook, whereas S&P has reaffirmed an AA-plus rating. Interestingly, while the water revenue bonds will not be backed by a debt service reserve fund, analysts have noted that the system’s liquidity and historical strong reserves alleviate this concern.
Cleveland’s water utility ranks as the nation’s 10th largest, serving approximately 1.4 million residents. S&P emphasized that management initiatives aimed at addressing high poverty levels and necessary rate adjustments could be stepping stones to ensuring long-term sustainability within the communities served.
Cleveland’s bond offerings in October signify a pivotal opportunity for the city to invest in essential public infrastructure, despite facing several socio-economic challenges. The favorable ratings from major credit agencies reflect a judicious approach to fiscal management and a commitment to improving the quality of life for residents. As Cleveland navigates its financial landscape, the decisions made during this bond issuance will undoubtedly shape the city’s path toward recovery and long-term stability.