WASHINGTON — Analysts have concerns about some Ohio issuers following General Motors Co.'s announcement that it would close four plants in Ohio, Michigan and Maryland as soon as March 2019.
GM announced the closings in late November. Together, the plants employ more than 3,800 people, with a 2017 payroll of $480 million. Moody's Investors Service analysts said the closures may hurt the credit of some of those issuers, though local officials are hopeful that economic diversity in the form of other manufacturing will prevent more pronounced fiscal distress.
GM’s plant in Lordstown, Ohio, among those due to be shuttered, has called the village in Trumbull County (Aa3) home for over 50 years.
Moody’s said the plant closure would have “a pronounced negative effect on Trumbull County’s economy.”
“A decline in employment is particularly hard on Ohio cities, which primarily rely on income taxes to fund operations,” Moody’s analysts wrote.
The Lordstown GM plant accounts for about 10% of the county’s wages, said Frank Mamo, lead author of the Moody’s report. He added the area overall has a weak labor market and is still below pre-recession numbers.
“So there isn’t a lot of broad growth that is taking place that will help offset these losses from GM,” Mamo said.
The payroll at the Lordstown plant was around $250 million and the median municipal income tax rate in Trumbull County is 1.5%, or $3.8 million of local income taxes in the county.
Income taxes will inevitably affect nearby Warren, Ohio (Baa1), Moody's said. Warren Tax Administrator Tom Gaffney is planning to have $161,000 less than in 2017, but said that figure was minimal compared to the town’s $20 million budget.
“It’s pretty simple, they’re closing the plant and this is what we’re going to lose,” Gaffney said.
Lordstown Mayor Arno Hill said after production ceases at the GM plant in his village, Lordstown will lose about $3 million in income taxes.
The county has the plant valued at $52.7 million, Trumbull County Auditor Adrian Biviano said. He added that the property was under tax abatements, which means GM was paying a reduced property tax rate as an incentive for operating there. In 2016, General Motors paid about $865,000 in property tax, and in 2010, they paid a little over $1 million.
“So they haven’t been paying that much in property taxes because of the prior years’ abatements,” Biviano said.
Currently, the City of Warren has about $10.5 million in general obligation limited tax bonds and Trumbull County has $15.5 million in general obligation limited tax debt. Lordstown Local School District (Baa1) has $1.5 million in certificates of participation and Moody’s analysts said it will be negatively affected since GM accounts for about 16% of the district’s property base.
Biviano said Lordstown will soon have a new plant in town — TJX Warehousing Facility.
TJX Companies Inc., which owns Home Goods Inc., TJ Maxx and others, could add 1,000 to 1,200 jobs in the county, Biviano said.
As for bond ratings, Biviano wasn’t too worried and said the county is supported by other manufacturing plants.
More communities have worked to diversify their economies for situations like GM’s plant closing, said Michael Belsky, executive director of the Center for Municipal Finance at the University of Chicago.
“It’s not like this is the first time that this has happened in the history of these communities,” Belsky said. “I think that some of them have worked to diversify for that very reason and hopefully that will lead to less of a shock.”
Moody’s can’t yet say whether TJX coming into Lordstown will affect the bond rating yet, Mamo said.
Hill said his village will adjust to GM moving out, but is still being cautious.
“We’re not out of the woods, but we should be able to take care of ourselves in the near future for a while,” Hill said.
