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Rating Update:

MOODY'S DOWNGRADES TO A3 FROM A1 THE RATING ON MANSFIELD'S (OH) $12.7M OUTSTANDING GOLT DEBT; RATING PLACED UNDER REVIEW FOR FURTHER DOWNGRADE

17 Dec 2010

Municipality
OH

Opinion

NEW YORK, Dec 17, 2010 -- Moody's Investors Service has downgraded to A3 from A1 the rating on the city of Mansfield's (OH) $12.7 million of outstanding rated general obligation limited tax bonds, and the rating has been placed under review for potential downgrade.

RATINGS RATIONALE

The bonds are secured by the city's general obligation limited tax pledge, subject to the ten mill limitation. The downgrade to the A3 rating reflects the city's deficit financial position, moderately-sized and mature tax base, and manageable debt profile. The rating has been placed under review for further downgrade, reflecting the need to evaluate the creation and implementation of the state-mandated Fiscal Emergency Recovery Plan which is expected to be completed in February 2011.

CITY PLACED UNDER FISCAL EMERGENCY IN 2010

Under the Ohio Revised Code, there are six conditions that may qualify a municipality for Fiscal Emergency. One of those conditions is when the aggregate of deficit amounts of all funds exceeds one-sixth of the total of the general fund budget for that year and the receipts available to those deficit funds during that year. As of April 30, 2010, Mansfield had an aggregate adjusted deficit balance of $9.7 million in thirteen funds, including a $676,000 deficit in the General Fund and $4 million deficit balance in the Safety Services Fund. Seven of the the thirteen deficit funds had deficits in excess of one-sixth of the allowable amount, including a $1 million excess deficit in the Safety Services Fund. Consequently, on August 19th, 2010, the State of Ohio (Aa1/negative outlook) placed the City of Mansfield in fiscal emergency status.

As part of the fiscal emergency status, Mansfield is required to work with the Fiscal Emergency Supervision Commission to put together a comprehensive recovery plan to bring the aggregate fund balances up to code. The plan, which is being created currently, is due by February 2011. Since no part of the plan has been finalized yet, management could not provide formal projections for revenues and expenditures for fiscal year 2011. Moody's has placed Mansfield's rating under review for potential downgrade, pending the results of the completion and initial implementation of the recovery plan.

PRIMARY REVENUE STREAMS REMAIN PRESSURED

The city's financial operations are expected to remain pressured for the near to medium term given deficit balances in major operating funds and dependence on economically-sensitive revenue sources. The city accounts for the majority of its public safety expenditures, which make up 76% of operating expenditures, in its Safety Services Fund. The Safety Services Fund is maintained outside the General Fund with a budget over twice as large as the General Fund and is primarily funded by income taxes, which comprised 90% of revenues for the Safety Services Fund and 64% of total operating revenues for the combined General and Safety Services Fund in 2009. The city has been experiencing operating shortfalls in its General Fund since fiscal 2007 and in the Safety Services Fund since fiscal 2008, driven by stagnant to declining revenue streams. Income tax receipts declined 3.3% in fiscal 2008, followed by an 8.5% decline in fiscal 2009. The city also experienced declines in the General Fund's largest revenue stream, intergovernmental sources, which account for 45% of General Fund revenues and 14% of total combined General and Safety Services Fund revenues and saw an even steeper decline of 22.9% in 2009, though we note this calculation is somewhat skewed as the city received a large estate tax settlement in fiscal 2008, which artificially inflated 2008 receipts. In reaction to the revenue shortfalls, the city implemented a series of substantial expenditure reductions in 2009 including the elimination of 55 general staff positions, as well as nearly 40 police and fire positions. Despite these adjustments, the city ended fiscal 2009 with a combined $2.5 million accrual basis operating shortfall in the General Fund and Safety Services Fund, which led the Safety Services Fund to have a deficit fund position on both a cash and accrual basis. The General Fund extended a $1.8 million interfund loan to the Safety Services Fund to eliminate its cash basis deficit position, though the fund maintained a -$1 million deficit on an accrual basis. Collectively, the General Fund and Safety Services Fund ended fiscal 2009 with a -$1 million GAAP basis deficit fund balance, or -3.7% of revenues, and an unreserved balance of -$3.4 million, or -12% of revenues. The larger unreserved balance accounts for the interfund loans made by the General Fund.

For fiscal 2010, management reports that major revenues, including income taxes, have performed close to budget and currently expects to have a balanced budget, maintaining the deficit position equal to fiscal 2009. The city is working on its fiscal 2011 budget in conjunction with development of its recovery plan. Even with a successful implementation of the city's Recovery Plan, we expect it will take considerable time to rebuild reserves to adequate levels given ongoing pressures in major revenue streams.

AVERAGE TAX BASE HAS LIMITED GROWTH PROSPECTS

Located in Richland County (A1/negative outlook), Mansfield is the county seat and a mature city with a relatively challenged employment base. The moderately-sized city's $1.8 billion tax base has seen assessed value declines for four consecutive years, and an average annual growth rate of -2.8% over the last five years. Most of the decline can be attributed to the state of Ohio's phasing out of tangible personal property tax, which was completely phased out as of 2009, as well as limited new construction. In 2005, tangible personal property had an assessed value of $145 million, which equaled a substantial 20% of the city's assessed value. Assessment of that property has now been fully phased out, though we note that the state has partially replaced the taxes collected on tangible personal property with a commercial activity tax.. Over the same time period, real property has seen virtually no growth, moving from a 2005 assessed valuation of $616 million to a 2009 assessed valuation of $612 million.

Management reports operations at the city's largest employers, including Med-Central Hospital (2,400 employees) and Richland County (1,474 employees), have been reduced somewhat from previous years. Additionally, a General Motors (corporate family rating Ba2/stable outlook) stamping plant in nearby Ontario (A1) closed in early 2010. The plant had employed 2,800 people in 2008. Unemployment numbers for the city have historically been higher than state medians, as they were through August 2010 when the city had an unemployment rate of 11.1%, compared to the state of Ohio's 9.7%. However Mansfield has shown better than average recovery, when compared to 2009 unemployment data. A contributing factor to this recovery was that AK Steel reopened its plant following a 2009 shutdown, which resulted in 261 employees returning to work. Despite some recovery in 2010, we expect the city's local economy will continue to be challenged in the near term due to the ongoing struggles facing the large manufacturing sector in the region.

MANAGEABLE DEBT PROFILE WITH NO ADDITIONAL BORROWING PLANS

We expects the city's debt profile will remain manageable, given modest direct obligations, aggressive amortization of principal, and limited near-term borrowing plans. The city's overall debt burden is manageable at 1.6%. Direct obligations are more modest at 0.5%. The city has no additional borrowing plans and principal amortization is rapid, with 87.9% repaid in ten years. All of the city's debt is fixed rate and officials have no plans to issue additional debt over the near term.

What could make the rating go up (taken off review):

* Development of a feasible recovery plan in a timely fashion

* Indications that the city is adhering to steps laid out in recovery plan

* No further deterioration of deficit fund balance

What could make the rating go down:

* Unrealistic plan put in place to reverse deficit fund balance

* Delays in implementation of recovery plan

KEY STATISTICS

City of Mansfield Unemployment, August 2010: 11.1% (State of Ohio: 9.7%)

Population (2000): 49,346 (2.5% decline since 1990)

2009 full valuation: $1.8 billion (2.8% average annual decline since 2004)

2009 full value per capita: $34,677

Direct debt burden: 0.5%

Overall debt burden: 1.6%

FY 2009 General Fund balance: -$8, -0.1% of revenues

FY2009 Combined General Fund and Safety Services Fund balance: -$1 million, -3.7% of revenues

FY2009 Unreserved General Fund balance: -$2.3 million, -26.8% of revenues

FY2009 Combined Unreserved General Fund and Safety Services Fund balance: $-3.4 million, -12% of revenues

Median Family Income: $37,541 (75.0% of state and 75.0% of US)

Per Capita Income: $17,726 (84.4% of state and 82.1% of US)

General Obligation Limited Tax Debt outstanding: $8.3 million

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Ryan Walters
Analyst
Public Finance Group
Moody's Investors Service

Emily Robare
Backup Analyst
Public Finance Group
Moody's Investors Service

Henrietta Chang
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Jack Dorer
Director
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


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MOODY'S DOWNGRADES TO A3 FROM A1 THE RATING ON MANSFIELD'S (OH) $12.7M OUTSTANDING GOLT DEBT; RATING PLACED UNDER REVIEW FOR FURTHER DOWNGRADE
No Related Data.
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