Mayor’s proposed budget could risk CH's bond rating

Cleveland Heights currently holds respectable bond ratings of Aa3 from Moody’s and AA- from Standard & Poor’s (S&P), signaling strong financial health and low credit risk. These ratings allow the city to borrow at lower interest rates, saving taxpayers money and enabling investments in critical infrastructure, services, and community projects.

However, the incomplete and underdeveloped 2025 budget proposed by the mayor raises serious concerns about the city’s financial stability and could lead to a bond rating downgrade. 

This outcome would carry cascading financial consequences, affecting Cleveland Heights’ ability to borrow affordably, fund vital services, and attract new residents and businesses.

Key factors in bond ratings and Cleveland Heights’ current risks

Rating agencies such as Moody’s and S&P evaluate municipalities based on several factors, including financial position, economic factors, and governance. The proposed budget jeopardizes each of these.

1. Financial Position: Bond ratings rely heavily on sound budgetary practices. Rating agencies look for municipalities to maintain balanced budgets, demonstrate transparency, and allocate resources effectively. The 2025 proposed budget fails on several counts:

• It projects a $1 million deficit, which could balloon to $8 million when accounting for unbudgeted capital needs.
• It lacks a comprehensive capital investment plan, despite the city’s pressing infrastructure needs.
• It lacks clarity on the status of reserve funds; proposed reliance on reserves to cover operational costs is widely viewed as a poor financial practice.
  
  

2. Economic Factors: Cleveland Heights benefits from economic diversity and proximity to major employment hubs, but stagnant revenues coupled with rising costs threaten stability. The absence of a strategic plan in the proposed budget exacerbates these challenges, signaling to rating agencies a lack of preparedness for economic fluctuations.

3. Management and Governance: Rating agencies assess financial management practices, including leadership qualities, transparency, and contingency planning. They consider the experience and effectiveness of city leadership, which may be scrutinized due to the administration’s delay in completing the 2023 audited financials and failing to file the 2023 unaudited financials with the State’s Auditor by either the original May 29, 2024, deadline, or the extended deadline of June 28, 2024, which could result in the state citing Cleveland Heights. The mayor’s lack of responsiveness to council’s requests for key financial data and the destabilizing turnover in the finance director position—during Seren’s term two directors have left, leaving this vital position vacant for over a year—have certainly contributed to this delay in reporting and this sparse, incomplete proposed 2025 budget, which fails to meet basic standards of municipal financial management.

The cost of a downgrade
 
A downgrade from Cleveland Heights’ current bond ratings could have long-term consequences, including:

Higher borrowing costs: Reduced ratings lead to higher interest rates on municipal bonds, increasing the cost of funding capital improvements.
Strained budgets: Higher debt servicing costs leave less money for critical services and community programs.
Reputational damage: A lower rating could deter businesses and residents from investing in Cleveland Heights, reducing economic growth and revenue.
Difficulty recovering: Rebuilding a strong bond rating takes time and requires stringent financial discipline, often at the cost of essential services.
I applaud council’s Dec. 16 “no” vote on the proposed budget. The mayor must commit to protecting Cleveland Heights’ bond rating and financial health and present to council a responsible budget that council can approve that:

• addresses the city’s capital needs with a detailed investment plan.
• eliminates deficits without depleting reserves.
• ensures transparency in financial reporting and decision-making.

Cleveland Heights deserves leadership that prioritizes fiscal responsibility and long-term planning. Maintaining a strong bond rating is essential to the city’s ability to grow, thrive, and serve its community.