City's bond rating takes dive

5/14/2009

The bond rating agency Moody's Investors Service yesterday downgraded Toledo's rating on its general obligation debt by one notch, from A3 to Baa1, and the city's financial outlook from stable to negative.

City Councilman George Sarantou, chairman of council's finance committee, said the evaluation by Moody's underscores the city's troubled financial situation. He said he's been told it could cost Toledo $150,000 in additional interest.

The city has $125.4 million of general obligation debt and $47.8 million in nontax revenue debt.

The four-page Moody's report blames its more pessimistic rating on the city's falling tax revenue, which is because of "unplanned idling at the Chrysler Jeep and GM Powertrain facilities as the domestic auto industry faced rapidly declining demand." It said the two employers are among the city's top 10 income tax producers.

"Moody's believes that income tax revenues may continue to falter and even decline," the report said.

Mr. Sarantou said the negative rating corroborates the city's revenue is affected by the weakened economy.

"It points to the fact that the projection of tax receipts by the city of Toledo as well as by the University of Toledo has just been substantiated by a respected organization. Clearly they are verifying what the city of Toledo has said," Mr. Sarantou asserted.

Last July, Moody's upgraded

Toledo's rating from A3 with a "negative outlook" to A3 with a "positive outlook."

In February, two University of Toledo professors forecast tax revenue for 2009 at between $140.7 million and $147.8 million - well below the $169.7 million the Finkbeiner administration was counting on.

The administration has been trying to trim $27.7 million from the 2009 budget. Mayor Carty Finkbeiner has laid off 75 police officers and is expected to announce more layoffs of general fund employees tomorrow or Monday.

According to the Moody's report, the administration and City Council already have closed the gap by $15.6 million, leaving a remaining deficit of $12.1 million.

The mayor is negotiating on a new three-year contract with the Toledo Police Patrolman's Association, seeking a 10 percent pay cut, an end to the city's paying of the 10 percent employee pension contribution, and a contribution toward the city's health insurance costs. The outcome of the pact could set the pattern for other city unions that have yet to settle.

To raise revenue, the mayor is asking council to reduce the 100 percent income tax credit afforded to Toledoans who work and pay income taxes outside the city to 50 percent and to raise the monthly trash collection fee.

So far council has refused to approve the mayor's revenue enhancement proposals, with members saying they won't act until the unions have made concessions.

Yesterday, the patrolmen's association and Toledo Firefighters Local 92 met for several hours to hear a subpoenaed deposition of one of the UT professors who projected the city's 2009 tax revenue. The union contends the projection was too low.

Donato Iorio, a lawyer for the patrolmen TPPA and Local 92, said yesterday he subpoenaed professor Oleg Smirnov because the city has rebuffed his requests for information since November.

Mr. Smirnov said the union had asked for too much information, including data on testing he did on economic models that were discarded.

The patrolmen's union and the city negotiators are to meet with a fact-finder May 28. Mr. Finkbeiner contends that meeting is the start of a process that could take another three months.

On Tuesday, at the mayor's request, council passed a resolution authorizing him to skip fact-finding and go directly to binding arbitration under which both sides would have to accept the fact-finder's determination.

Mr. Iorio said the union would not agree to the process, because it denies the membership an opportunity to vote on a proposed settlement and because fact-finding could be productive.

Contact Tom Troy at:

tomtroy@theblade.com

or 419-724-6058.