Financial Fact v. Myth

[Jennifer Pae]

Here is the actual Moody's report from this past May. Remember to keep in mind that their goal is to make the investors confident in the debt being issued. The City did not have any part in writing this report.

New Issue: Lakewood (City of) OH
MOODY'S ASSIGNS Aa3 RATING TO CITY OF LAKEWOOD'S (OH) $10.84 MILLION GOLT BONDS, SERIES 2007
Aa3 RATING APPLIES TO $59.828 MILLION OF GOLT DEBT, INCLUDING CURRENT OFFERING
Municipality: OH

Moody's Rating Opinion
NEW YORK, May 8, 2007 -- Moody's Investors Service has assigned a Aa3
rating to the City of Lakewood's (OH) $10.84 million Various Purposed GOLT Bonds, Series 2007. The Aa3 rating applies to $59.828 millionof general obligation limited tax debt, including the current offering. The bonds are secured by the city's general obligation limited tax pledge - subject to the State of Ohio's (general obligation rated Aa1/negative outlook) 10-mill limitation - and proceeds will advance refund a portion of the city's Series 2001 GOLT bonds and provide permanent financing for the city's 2006 bond anticipation notes. The Aa3 rating reflects the city's modest but improving financial position; moderately sized and mature tax base with above average socioeconomic indicators; and manageable debt profile.

MODEST BUT IMPROVING FINANCIAL POSITION; INCOME TAX RATE INCREASE EXPECTED
Moody's expects the city's financial position to remain stable over the near term with a significant likelihood of improved financial performance should the city achieve passage of an income tax increase. After three successive years of sizable operating shortfalls due to softening of the city's primary revenues (namely, income taxes), the city reduced its workforce through attrition and achieved other operating efficiencies so as to restore structural balance, leading to modest surpluses in fiscal 2005 and fiscal 2006 (unaudited).

The city's fiscal 2005 modified accrual General Fund balance stood at just over $4 million, or an adequate 11.3% of revenues. The city's unaudited fiscal 2006 General Fund results show a cash-basis operating surplus of approximately $300,000 - increasing cash reserves to nearly $972,000 (a narrow 2.6% of receipts). The city's fiscal 2007 budget calls for a $880,000 use of fund balance - but this budgeted figure is conservative as it is based upon a reduction in income tax receipts and expenditures well above expected levels. Year to date collections are modestly ahead of fiscal 2006.

Income taxes, the city's primary operating revenue stream at 50.1% of fiscal 2005 revenues, were flat to declining from 2001 through 2003, but rebounded to nearly $18.2 million in fiscal 2006, or a 6.1% increase over 2005, and 1.6% average annual increase since 2002. The city presently levies a 1.5% income tax, with a 0.5% credit for resident taxes paid to other Ohio communities. The city plans to seek voter approval to increase the tax rate to 2% while also increasing the resident credit to 1%, which would effectively increase the income tax rate upon non-resident workers and residents that work within the city, while keeping the rate flat for residents that work outside the city. The increase is expected to generate an additional $2.5 million in revenues annually, which will support the city's goal of rebuilding cash reserves to $3 million or more within the next five years.

MATURE SUBURBURBAN CLEVELAND CITY EXPERIENCING MODEST GROWTH
Located just west of Cleveland (GOLT rated A2) on the shore of Lake Erie, Lakewood's mature tax base continues to see modest growth, that is mainly driven by property value appreciation rather than new construction, in its moderately sized $2.8 billion tax base. Though the tax base's modest 4% average annual growth rate is primarily attributable to reappraisal and reassessment, significant commercial and residential development projects are underway or recently completed. Such projects include townhome and condominium projects mixed with retail outlets. Resident income levels slightly exceed national norms.

ISSUE RATING
Various Purpose General Obligation Limited Tax Bonds, Series 2007 Aa3
Sale Amount $10,840,000
Expected Sale Date 05/16/07
Rating Description General Obligation Limited Tax per capita and median family incomes equivalent to 110.9% and 106.8% of national figures, respectively.

MANAGEABLE DEBT LEVELS
Moody's expects the city's debt position will remain above average, yet manageable, given continued modest tax base growth and moderate future capital needs. The overall debt burden is above average at 5.9% of estimated full value, but reflects significant borrowing by Cuyahoga County (GOLT rated Aa1) and Lakewood City School District (GOULT rated Aa3). The direct debt burden is a more manageable 2.3%, and retirement is favorable with 64% of principal repaid within 10 years.

KEY STATISTICS
Population (2000): 56,646
2007 Estimated full valuation: $2.82 billion
2000 Per capita income (as % of nation): 110.9%
2000 Median family income (as % of nation): 106.8%
Overall debt burden (direct): 5.9% (2.3%)
Fiscal 2005 General Fund balance (modified accrual): $4.02 million
(11.3% of General Fund Revenues)
Fiscal 2005 General Fund balance (cash basis): $615,718 (1.7% of
receipts)
Fiscal 2006 unaudited General Fund balance (cash basis): $972,000 (2.6%
of receipts)
Post-sale parity debt outstanding: $59.828 million

Analysts
Shawn O'Leary
Analyst
Public Finance Group
Moody's Investors Service
Henrietta Chang
Backup Analyst
Public Finance Group
Moody's Investors Service