Cleveland, a resilient U.S. city with a rich history, is set to embark on an important financial venture this October. The city plans to issue two significant bond offerings, marking a pivotal moment for its economic revitalization efforts. This move promises to enhance public facilities while navigating the complexities of fiscal stability and growth amidst changing socioeconomic conditions.
On October 4th, Cleveland will introduce its inaugural bond deal of the month—an approximate $64.4 million general obligation (GO) bond offering. The funds allocated from this initiative are aimed at enhancing essential infrastructure, including public facilities, parks, recreational structures, and the maintenance of critical road systems and bridges. Following this initial offering, a second bond deal, valued at $90 million in water revenue bonds, is scheduled for October 16, focusing on pivotal water system upgrades and refinancings that will further bolster the city’s resources.
The lead underwriter for the Series 2024A GO bonds is Huntington Capital Markets, while advisory support will be provided by Government Capital Management and Phoenix Capital Partners. Additionally, legal guidance will be offered by the Squire Patton Boggs law firm, ensuring that all legal and regulatory aspects are adhered to in this venture.
Credit Ratings and Financial Outlook
A key aspect of these bond offerings is the strong credit ratings that Cleveland has garnered from major rating agencies. Moody’s Ratings has assigned an Aa3 rating to the GO bonds, while S&P Global Ratings has rated the bonds AA-plus, with both agencies providing a stable outlook. This creditworthiness reflects confidence in Cleveland’s financial management and revenue-generating capacity, which primarily hinges on a robust municipal income tax system.
According to preliminary reports, a substantial portion of the GO bond proceeds—approximately $24.9 million—will be directed toward improving roads and bridges. Other allocations include $14.5 million for public facility enhancements, $10.6 million for acquiring durable vehicles and equipment, and targeted investments in parks, public safety vehicles, and city cemeteries. These investments reveal a concerted effort to improve both the quality of life for residents and the overall functionality of city services.
Economic Context and Challenges
Despite a relatively stable financial position, Cleveland faces significant economic challenges that affect its credit rating and fiscal health. As revealed by Moody’s, the city struggles with elevated poverty levels and a shrinking population, placing constraints on its overall creditworthiness. Its general fund balance has seen fluctuations over recent years, dipping from $131.7 million in 2021 to $46.3 million in 2023. However, this current fund balance is still above pre-pandemic levels, indicating resilience amid financial pressures.
In recognition of these challenges and their potential impacts, Cleveland has remained proactive, enacting a balanced budget for the upcoming fiscal year and tracking better than expected fiscal performance thus far. This is thanks in part to consistent income tax revenue streams, with a projected increase of $14.1 million in 2024. However, Moody’s emphasizes the need for ongoing monitoring of income trends, especially given the city’s unique economic dynamics, including substantial contributions from non-resident workers.
Looking ahead, Cleveland has expressed no immediate intentions to further increase its GO debt levels, yet the city has established a pattern of issuing bonds on an annual basis. The Series 2024HH water revenue bond deal, which will follow the general obligation offering, underscores this commitment to maintaining and improving essential services—this time focusing on the city’s waterworks. With plans for treatment plant improvements and ongoing infrastructure development, Cleveland aims to ensure that its water supply remains reliable and safe for the nearly 1.4 million residents it serves.
Importantly, while there is a considerable financial investment involved, management is acutely aware of the challenges faced by its most vulnerable communities, noting that the current rate increases in water services may strain these populations. Efforts are being made to invest in targeted programs that address these disparities, showcasing a thoughtful approach to urban management and social responsibility.
Cleveland’s bond offerings not only signify a step forward in addressing infrastructural deficits but also reflect a broader strategy to stabilize public finances in a challenging economic environment. As the city navigates this dual bond issuance, it emphasizes both prudent fiscal management and a commitment to enhancing quality of life through improved civic amenities and services. The balance of growth, fiscal responsibility, and social equity will be critical as Cleveland shapes its future within the evolving landscape of municipal governance.