ELYRIA — A bond credit rating agency has downgraded Elyria and given the city a negative outlook, a move Finance Director Ted Pileski said is further proof the city is headed for a financial cliff if changes don’t occur soon.
Moody’s Investors Service released a credit opinion last week downgrading the city’s general obligation limited tax debt from A1 to A2. Moody’s also assigned the city a negative outlook, meaning it will revisit and possibly issue a subsequent downgrade in 12 to 18 months, Pileski said.
“We now have an outside agency recognizing we are slipping,” he said. “I told them we would do our best to replenish the reserves we are depleting, but that can only happen if things change.”
Elyria has $43.8 million of rated outstanding general obligation limited tax debt. The downgrade comes just a week after Council voted on a bond package of more than $17 million, and Pileski said it likely will impact the city’s borrowing power in the future.
Council members responded with a litany of concerns and questions.
“The issue has been the overtime in all of the departments,” said Council President Mike Lotko, D-at large. “We have to do something about this, and I am talking about police and fire, too. We have to get on the same page.”
Pileski agreed, but he added that overtime can’t be the only thing the city looks at for cuts.
“We are not starting the year off good,” he said. “Everything should be on the table. We have to cut expenses.”
According to the Moody’s opinion, the city’s track record of spending down its cash reserves is contributing to its downgrade. This is something Pileski has repeatedly lamented is not a good financial strategy. In addition, declining income tax revenue and a weak economic profile also are a factor in the Moody’s rating reduction.
Other factors Moody’s looked at include the city’s tax base, moderate debt burden and high pension burden due to participation in two underfunded cost-sharing retirement plans.
Councilman Marcus Madison, D-5th Ward, said the city should revisit some of the plans put in place that have not come to fruition including hiring a human resource director and economic development specialist in addition to the Parks and Recreation Department’s summer camp program, and Mayor Holly Brinda’s hopes of building a new fountain in Ely Square.
“This is why I’ve been asking these questions along the way — to try and understand the direction we are going as a city,” he said. “The numbers simply were not adding up. The bonding people are telling us that our fiscal plan is a poor risk, and they don’t see a clear path for things to improve. This is just not me saying it; as far as I know, this is the first time we’ve been downgraded in many years. It seems like our economic development plan is comprised of fireworks, fountains and farmer markets. As Council, it’s about time we start speaking up.”
Brinda said both the human resource director and economic development specialist positions will impact the budget in the long run as one is about saving money on outside consultants and experts and the other is about growing the tax base.
“We are spending $250,000 on ancillary services because we don’t have the in-house expertise on federal requirements,” she said.
Safety-Service Director Mary Siwierka added that just this week, a workers compensation hearing is being held in Cleveland regarding a city employee. She cannot attend, and the city does not have a human resource director to step in. As a result, a lawyer will attend the hearing at a rate of $200 an hour.
“That’s just one example,” she said.
Siwierka further suggested the city should start looking at its health care costs, possibly eliminating coverage for part-time employees.
“We audited the health care rolls two years ago and saved $200,000,” she said. “Maybe it’s time to go back and force other people off.”
Monday’s announcement by Pileski to City Council’s Finance Committee of Moody’s downgrade was coupled with an additional report on the city’s income tax collections for the first quarter.
The year-to-date totals in comparison with the prior year’s collections show a revenue decrease of about 16.8 percent in the general fund and 20 percent in the police levy fund.
In 2016, the two combined funding streams brought in $6.5 million in the first three months of the year. Over the same time period this year, the city has collected $5.3 million.
Proceeds from the passage of Issue 6 — the 0.5-percent, five-year temporary tax voters passed in 2016 — are helping to offset the revenue losses. The 2017 collections for Issue 6 totaled $1.5 million.
However, Pileski said Elyria can’t look at the additional revenue to pump up the general fund because Issue 6 is earmarked for specific purposes.