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Municipal advisors tell council Cincinnati's AA ratings are strong but pension liabilities and reserves drive future risk
Summary
Davenport municipal advisors told council members Cincinnati's AA2/AA credit ratings reflect stronger reserves and better fiscal management than a decade ago, but elevated pension and long-term liabilities remain the main credit weakness; advisors warned a downgrade could raise annual debt costs by multiple millions.
Municipal advisors from Davenport & Company briefed the Budget & Finance Committee on the city's credit position, underscoring that strong management and restored reserves supported rating upgrades since 2014 while pension and other long-term liabilities remain a material credit constraint.
Kyle Wilkes and Roland Kooch described the four principal drivers rating agencies evaluate: economic base, financial performance and flexibility, management, and debt and liabilities (including pensions and OPEB). They said Cincinnati now benefits from multi-year surpluses and compliance with a stabilization fund policy that set a reserves target (recently referenced at about 17%), but ratings remain sensitive to the size of long-term liabilities.
Potential downgrade costs: the advisors modeled a hypothetical move of a single notch lower in the AA category and estimated that a 5–15 basis-point increase across a $500 million–$600 million debt portfolio could translate into multiple millions in additional annual debt service. "It's not an insignificant difference and it's really meaningful over the long run," one advisor said.
Pension and liability discussion: Council members asked whether greater pension funding or moving liabilities to a statewide plan would materially alter the rating; advisors said the key issue is the size of the liability and the long-term funding trajectory. Additional contributions and structural funding discipline help, but rating upgrades typically require consistent multi-year improvement in liabilities and reserves.
Taxes, bonding and project revenues: Advisors said recurring revenues used to pay recurring expenditures are viewed positively by rating agencies; raising an earnings tax could be favorable if the additional revenue were recurring and sustainable. They also said the legal and economic feasibility of bonding against a specific revenue stream depends on state law and project-specific details.
Next steps: Davenport said it would return with a follow-up presentation focused on proposed capital projects and CIP metrics. The committee accepted the briefing for the record.
