Standard & Poor downgrades Cincinnati's financial rating, provides silver lining

CINCINNATI – The city’s financial health received a mixed, but mostly positive report from two financial institutions this week.

Moody’s Investor Services notified Cincinnati city council that its bond rating will remain unchanged this year. The rating helps determine the city’s interest rate on certain types of bond debt.

Standard & Poor's though downgraded the city’s financial health two positions, from AA+ to AA-, according to a release from city hall. Details of that report will be released Monday by S&P.

The one positive note out of the rating change, city official state, is that the S&P report improved the city’s financial outlook from “negative” to “stable.” The change suggests a more positive long-term trend for the city’s finances.

Mayor John Cranley attributed the downgrade to a $862 million unfunded liability in the city’s retirement system. The city’s problem with its pension system is due, at least in part, to the 2008 recession that adversely affected pension investments.

S&P cited pension negotiations initiated by Cranley and city council, along with the passage of a structurally balanced municipal budget for the “stable” condition rating.

“The stable outlook reflects Standard & Poor’s view of the city’s strong management conditions and very strong liquidity,” wrote S&P Credit Analyst Caroline West in a report. “Although the projected 2014 fiscal returns indicate a reduction in budgetary flexibility and weak budgetary performance, given that management has a credible strategy to implementing a structurally balanced budget in the short-term and addressing the city’s large pension liability over time, we do not believe the rating will be pressured over the two-year outlook horizon.”

Moody’s rating stayed the same as what the organization issued in July 2013 at Aa2.

Cranley responded optimistically to the news from the two financial organizations and cited decisions by previous city administrations for the downgrade given by S&P.

“We’ve stopped the bleeding,” Cranley said. “The current downgrading was due to choices previous councils and administrations have made with their spending priorities,” Cranley said. There was nothing we could do to avoid it, but it could’ve been worse. If we had done nothing, we would have gone down three or four grades. The current downgrading was due to choices previous councils and administrations have made with their spending priorities.”
 

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