Moody’s has downgraded Middletown’s bond rating one step, warning a dwindling population is contributing to both a weak labor market and a crippled housing market.
The ratings affect the interest rates at which the city can borrow money for major projects.
The downgrade to A1 from Aa3 reflects a vulnerable economic profile indicated by a local labor market struggling to recover recessionary losses, according to Moody’s. However, this is balanced by a moderate debt burden and healthy financial position.
Middletown’s credit strengths include a healthy financial position, with total liquidity providing a satisfactory cushion to the city’s dependence on local income taxes, according to the Moody’s report.
Draft 2016 figures indicate a $600,000 increase to available fund balance, a key driver of the positive result is the continued growth in local income taxes. Middletown’s liquidity across major operating funds remains sound with moderate debt burden with rapid repayment as the city has a policy of maintaining a general fund balance of at least 15 percent of expenditures.
The report was issued June 30.
City Manager Doug Adkins said the Moody’s report reinforced the city’s need to focus on reducing poverty and improving residential property values.
“While Moody’s called Middletown’s financial condition ‘healthy’ and noted sound liquidity of city finances, the detailed factors used to recommend the downgrade included a significant drop in median family income over the past 10 years and a significant drop in residential real estate values,” Adkins said. “The Butler County Auditor previously noted a $58 million drop in residential property value in Middletown from 2011-2015. Those decreases are factored into these types of decisions and it reinforces the overriding need to make significant improvements to our residential housing stock over the next several years. Simply increasing General Fund balances will not lead to improved ratings.”