FUNDING CRISIS Moody's downgrades Mahoning bond rating
The loss of the sales tax contributed to the change.
YOUNGSTOWN -- Mahoning County's financial situation has led a major agency to downgrade the county's bond rating.
Moody's Investors Service has downgraded the county's bond rating to Baa1 from A3. Moody's ratings for municipal bonds are in descending order of quality from Aaa to C, according to Robert Lamb and Stephen Rappaport, authors of a book titled "Municipal Bonds."
"The concept of a rating is simple," the authors write. "What is the probability of the timely repayment of principal and interest?"
Lower rating = higher interest
A bond rating is similar to a person's credit rating, said county Auditor George Tablack.
For an individual, the better the credit rating, the more likely a bank will loan money for a major purchase such as a house or a car, and the better the interest rate on that purchase.
If a county has a good bond rating, the interest rate, in most cases, will be lower on bonds purchased by an investor or lending institution.
County use bonds to finance projects such as bridge replacement or major improvements to county facilities. This means the county has to pay less.
Conversely, a lower bond rating increases a county's interest rates to buy bonds, Tablack said.
"Ratings ... have the most consistent effect on bond prices," Lamb and Rappaport wrote.
'Diminished financial position'
Moody's recently sent an e-mail to Tablack verifying that the rating service has assigned a "negative outlook" for the county.
"The downgrade reflects the county's diminished financial position and the loss of a significant revenue stream [the half-percent sales tax]," the e-mail said. "The negative outlook is based on the presence of substantial near and medium structural challenges facing the county that could continue the deterioration of the county's already diminished financial position."
The e-mail adds that the county also had a decrease in property tax revenue amounting to nearly $6 million in 2004 -- revenue which is required to be used for general obligation bond debt service.
The county must take steps "in order to regain structurally balanced financial operations," Moody's noted. "Failure to do so in the near term will result in further deterioration in overall credit quality."
Moody's is among the world's most respected, widely used sources for credit ratings, research and risk analysis.
Tablack said there is a possibility that Moody's representatives will meet with county officials next month to discuss the rating downgrade and its implications.