CHICAGO--(BUSINESS WIRE)--Fitch assigns an 'A' rating to the Greater Cleveland Regional Transit Authority (GCRTA, or the authority), Ohio's approximately $28 million of general obligation (GO), limited tax capital improvement refunding bonds, series 2008B. The bonds are scheduled for negotiated sale on or about September 11, and are secured by the authority's full faith and credit pledge within the ten-mill limitation imposed by state statute. However, the authority intends to pay principal and interest from sources other than a property tax, primarily GCRTA's 1% sales and use tax. Proceeds will refinance outstanding GO bonds for debt service savings. The rating Outlook is Stable.Fitch also affirms the 'A' rating on approximately $182 million of outstanding GO debt.
The 'A' rating reflects the broad sales tax base of Cuyahoga County, and the solid gains in ridership over the past five years. The rating is also based on a challenging operating environment, as a weakening service area, low levels of state financial support, and a heavy dependence on a potentially volatile sales and use tax with low farebox recovery continue to pressure fiscal stability. Reduced consumer spending may pose a risk to sales and use tax projections even given a small budgeted decline in 2008, but increased fares somewhat offset this risk. Fitch expects the authority to continue to manage the widening gap between operating revenue and expenses through increased consolidations, efficiencies, external funding sources, and fare adjustments, if necessary.
Although the bonds carry the authority's GO pledge, a property tax levy is not currently collected, as other revenues are sufficient to pay debt service. In addition, Fitch places limited weight on this pledge, as the overall property tax rate is limited to 10 mills, and a levy for GCRTA would necessitate a reduction to other taxing entities in the county. GCRTA's budgeting procedures and county oversight ensure timely collection of the levy if projected revenues are insufficient, but current revenues cover debt service over ten times on a gross basis. Pursuant to the sales and use tax collection agreement, the Ohio Department of Taxation directly deposits monthly sales and use tax revenues with the bond retirement fund held by the trustee for bondholders, with the remaining revenues transferred to the authority for its operating and capital needs.
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