Cleveland is set to go to the market this week with a pair of bond offerings that signify both a commitment to public infrastructure and a reflection of the city’s evolving financial landscape. Understanding the implications of these deals requires a careful examination of their purpose, the city’s fiscal health, and the rating assessments they have received.
The first bond issue slated for Wednesday amounts to approximately $64.395 million, classified as general obligation bonds. These funds are earmarked for essential improvements in various public amenities. Specifically, the money will be allocated to upgrading parks and recreational facilities, enhancing public buildings, refurbishing bridges, and improving roadways, reflecting a comprehensive approach to urban infrastructure development.
A second, larger offering of $90 million in water revenue bonds is scheduled for pricing on October 16. This issuance aims to support capital projects and manage existing debt by purchasing outstanding bonds through a tender offer. The strategic timing of these bond deals indicates Cleveland’s proactive stance in managing its financial operations and addressing infrastructure needs, which are critical for urban sustainability.
Underwriters and Financial Advisors Involved
The lead underwriter for the general obligation bonds is Huntington Capital Markets. Municipal advisory services are provided by Government Capital Management and Phoenix Capital Partners, while Squire Patton Boggs, LLP serves as bond counsel. Their collaboration is designed to ensure that the bond offerings adhere to financial regulations and attract a broad base of investors, demonstrating Cleveland’s commitment to transparency and accountability in its financial dealings.
Credit Ratings and Financial Outlook
Cleveland’s bond offerings have garnered positive ratings from prominent credit agencies. Moody’s has assigned a rating of Aa3 to the general obligation bonds, and S&P Global Ratings has awarded them an AA-plus rating. Both agencies have provided stable outlooks, reinforcing market confidence in Cleveland’s financial stability. The backing for these bonds is underpinned by property taxes and municipal income taxes, which showcase Cleveland’s diverse revenue streams and operational resilience.
However, challenges remain. Moody’s noted that the city’s creditworthiness is somewhat constrained by socio-economic factors, including a resident income ratio significantly lower than the national average, high poverty levels, and a declining population. Yet, the city’s taxing structure effectively captures income from non-resident commuters, somewhat mitigating these concerns.
The financial health of Cleveland has shown resilience, especially as it navigates the post-pandemic environment. The city ended 2023 with a general fund balance of $46.3 million, indicating a slight decline from previous years but remaining above pre-pandemic levels. The city’s main revenue source—a 2.5% income tax—has seen projected increases, with anticipated receipts rising by $14.1 million in 2024 compared to the prior year.
Cleveland’s financial operations have maintained a trend of surpluses since 2016, largely attributable to a strategic income tax hike approved by voters in 2015. While year-over-year fluctuations in fund balance are present, the proactive measures taken by city management, including passing a balanced budget for 2024 and experiencing positive expenditure variances, highlight responsible fiscal governance.
The ambitious plans for both bond offerings focus on long-term infrastructure enhancement. The general obligation bond proceeds will facilitate vital upgrades to transportation networks and public facilities, paving the way for improved community services and urban resilience. In addition to physical infrastructure, Cleveland is also prioritizing emergency services through enhanced funding for vehicles for public works and safety departments.
Conversely, the water revenue bond will not only finance new projects for the city’s waterworks system—investing in both treatment facilities and overall system efficiency—but also include a significant initiative aimed at refunding existing bonds through a tender offering aiming for a minimum 3% savings rate. This forward-thinking financial maneuver underscores the city’s commitment to maintaining a modern and effective water supply system, crucial for the health and safety of its residents.
Cleveland’s upcoming bond deals epitomize a balanced approach to urban development and fiscal responsibility. By targeting both immediate infrastructure needs and long-term financial stability, the city is positioning itself for sustainable growth. While there are inherent challenges stemming from socio-economic conditions, the overall trajectory appears positive, supported by strong management practices and robust revenue generation strategies. The outcomes of these bond offerings will not only shape Cleveland’s physical landscape but will also play a pivotal role in determining its financial future.