Cleveland is gearing up for two significant bond transactions aimed at enhancing the city’s infrastructure and vital services. The first offering, which will commence on Wednesday, involves an approximate $64.4 million general obligation (GO) bond aimed primarily at improving public facilities and transportation networks. A follow-up issuance is scheduled for October 16, establishing an additional $90 million in water revenue bonds designed to support capital projects and facilitate the tendering of outstanding bonds.
These financial instruments will serve multiple purposes for the city, but at their core, they are a reflection of Cleveland’s commitment to fostering urban development and ensuring the maintenance of essential services amid ongoing economic challenges.
The allocation of the GO bond proceeds highlights the city’s priorities. Approximately $24.9 million is earmarked for bridges and roadway enhancements. Public facilities will receive about $14.5 million, while nearly $10.6 million is designated for the procurement of heavy-duty trucks and equipment essential for various city services. Additionally, parks and recreation facilities will see an investment of approximately $8.8 million, with $4.6 million slated for vehicles for the Departments of Public Works and Public Safety, and $1 million for improvements to city cemeteries.
These financial commitments signal a broader strategy to address both immediate infrastructural needs and long-term community enhancements, especially as the city grapples with aging facilities and infrastructural decay.
Cleveland’s financial strategies have garnered a sound endorsement from rating agencies. Moody’s has assigned a rating of Aa3 for the GO bonds, while S&P Global has rated them AA-plus. Both agencies view the outlook as stable, which should instill a degree of confidence among investors and stakeholders regarding the city’s fiscal responsibility.
However, the rating agencies have also voiced concerns regarding the city’s economic standing. A report from Moody’s indicates that Cleveland’s credit rating could be weighed down by factors such as a median income level that is significantly below the national average, heightened poverty rates, and a declining population. Nevertheless, it is important to note that the city’s ability to draw tax revenue from non-residents, who generally have higher income levels, serves as a mitigative factor against these challenges.
Cleveland’s financial position is nuanced. While the city experienced a decrease in its general fund balance from $131.7 million in 2021 to $46.3 million in 2023, it still maintains a fund balance that is above pre-pandemic levels. The predominant source of revenue for the city is a 2.5% income tax, and expectations indicate an increase in general fund income tax receipts of $14.1 million from 2023 to 2024.
Despite facing various challenges, including the end of pandemic relief, Cleveland’s proactive financial management has allowed it to pass a balanced budget for fiscal 2024. This showcases the city’s ongoing strategic planning and adaptability to economic shifts, as highlighted by the positive expenditure variances influencing current operations.
The forthcoming issuance of $90 million in water revenue bonds presents another layer to Cleveland’s financial landscape. The funds will not only finance essential improvements to the city’s waterworks system but will also be utilized to purchase and retire existing bonds through a tender offer. With projects targeting upgrades at treatment facilities, these bonds represent a commitment to sustainable water management practices, underscoring the city’s responsibility toward its citizens and the environment.
The inclusion of Goldman Sachs as a senior manager, alongside experienced financial advisors, reinforces confidence in the management of these bonds. Moody’s has rated the water revenue bonds Aa2, and S&P has given them an AA-plus rating with a stable outlook, signaling healthy liquidity and favorable coverage metrics despite the absence of a debt service reserve fund.
Cleveland’s bond offerings not only reflect fiscal strategies but also the city’s resolve to proactively address the needs of its communities. Factors including rising water rates juxtaposed with a substantial poverty rate could pose challenges for vulnerable populations; however, city management is taking steps to mitigate these effects through targeted initiatives.
Cleveland’s approach to financing through GO and water revenue bonds exemplifies how local governments are embracing a dual strategy: investing smartly in critical infrastructure while also ensuring fiscal responsibility. By prioritizing both community welfare and sustainable growth, Cleveland aims to forge a path toward resilience amidst complex economic dynamics.