CHICAGO - Moody's Investors Service boosted its outlook to stable from negative on Cincinnati, saying the Ohio city is enjoying a mild economic recovery and has recently struck a beneficial settlement on its retirement obligations.
Moody's affirmed its Aa2 rating on the city's unlimited-tax general obligation bonds. The city is gearing up to sell $155 million in GO new-money and refunding bonds. The sale date is tentatively set for Aug. 5.
"The stable outlook reflects our opinion that indications of economic recovery combined with management's plan and expected capacity to strengthen the city's financial position will support current credit quality," Moody's said in a press release. "A recent Cincinnati Retirement System settlement agreement is expected to moderate the city's annual pension costs and unfunded liabilities."
The Aa2 rating reflects the city's role as the regional economic center of southwest Ohio, as well as a healthy financial position, growing income tax revenue, and above-average exposure to underfunded pension liabilities, analysts said.
Cincinnati reached agreement with its retirees and unions last December after more than a year of negotiations. The deal calls for the city to transfer at least $200 million from its healthcare trust into the pension system, as well as contribute 16.25% of payroll into the pension annually for 30 years. In return, unions and retirees agreed to a reduced cost-of-living-adjustment increase, down to 3% simple from 3% compounded, as well as suspending COLAs for all employees for three years; and extending the retirement age and years of service requirement for some employees.
Cincinnati's unfunded pension liability totals roughly $862 million, with a funded ratio of 61%, according to the city.
Moody's said it might upgrade the city if it's able to moderate its retirement obligations, but also warned that it could downgrade the city if implementation of the settlement is delayed or canceled for some reason.
Standard & Poor's affirmed its AA-minus rating and stable outlook, saying the rating reflects "very strong budgetary flexibility."
