Niagara Gazette

May 15, 2013

'Negative outlook' for Falls finances from bond agency

By Justin Sondel justin.sondel@niagara-gazette.com
Niagara Gazette

Niagara Gazette — The city’s financial standing has taken another hit.

Moody’s Investor Services announced this week that it has downgraded its bond rating for the city of Niagara Falls from Baa1 to Baa3, while assigning a “negative outlook.”

It marks the second time this year the agency lowered the city’s bond rating. In January, the firm dropped its rating to Baa1 from A2 while placing the city’s credit worthiness under review for a possible further downgrade.

Agencies like Moody’s assign bond ratings as a measure of a municipality’s financial condition. Higher ratings are generally viewed as a sign of financial soundness, while lower ratings tend to cause municipal governments to pay larger interest rates when borrowing and, thus, incur additional expenses.

In its statement concerning the ratings downgrade, Moody’s expressed concern about the city’s financial situation, largely as a result of the ongoing casino revenue dispute between the Seneca Nation of Indians and the state of New York.

“The Baa3 rating incorporates the city’s highly stressed liquidity position that the city currently faces given the continued remittance of casino revenue,” Moody’s concluded. “The rating also incorporates the city’s weak economy, high unemployment, depressed income levels, and elevated debt position. The negative outlook reflects the city’s projected depletion of cash as early as November 2013 if the money due from the Seneca Nation is not remitted or an alternate liquidity source is not identified.”

The Senecas stopped paying the state casino revenue agreed upon in the 2002 gaming compact in 2009 because, they say, the state violated the exclusivity clause in that contract. About $600 million has been withheld since, without roughly $60 million of the total owed to the city.

Moody’s acknowledges that, depending on how the conflict between the state and Senecas is resolved, the city’s bond rating could soon be changing again.

The agency’s “negative outlook” means there is “continued downward pressure” which could lead to another downgrade in the next year or two, David Jacobson, a spokesperson for Moody’s, said in an email.

In March, the city was also put “on watch” for a downgrade from Standard & Poor’s Rating Services, which currently gives the city a bond rating of triple-B-plus.

Mayor Paul Dyster continues to maintain that he is confident the city will get its money — either through an ongoing arbitration process or a negotiated settlement between the state and the Senecas — before cash flow issues come to a head.

He disagreed with Moody’s assertion that there is no clear time frame for a resolution to the dispute.

“There is a clear time frame for the conclusion of arbitration,” Dyster said, referring to the mid-year end date for arbitration that has been repeated by state officials. “That makes for a clear time frame for a negotiated settlement.”

In addition, Gov. Andrew Cuomo gave the Senecas an ultimatum last week, saying that the Indian tribe needs to come to the table to negotiate a deal with the state before the legislature recesses in late June. Otherwise, Cuomo said he would push state lawmakers to open up Western New York as a site for a non-Indian casino as part of his gaming expansion plan.

Council Chairman Glenn Choolokian said he was not surprised by the bond rating downgrade.

“We’re in a bad spot,” Choolokian said. “The city didn’t do anything to the state or the Seneca Nation.”

City lawmakers have for months been asking Dyster join them in formulating a contingency plan for any delay or lack of deliverance of the anticipated casino revenue.

Choolokian said Dyster’s administration has not reached out to his office to set up a contingency plan since the matter was discussed in February.

“I think the mayor’s just hoping that the casino money comes in,” Choolokian said. “I hope he’s right.”

The New York Power Authority offered the city a deal to bring a large influx of cash into the city’s general fund in November. The authority agreed to consolidate 44 years worth of payments from an agreement that was part of the 2007 Niagara Power Project relicensing agreement converting the $850,000 annual payments into a one-time $13.4 million windfall. The deal includes an option to return the money and resume the original agreement.

In his email to the Gazette, Jacobson, the Moody’s spokesperson, said the NYPA deal is a possible solution to the city’s short-term cash needs.

Members of the city council majority balked at the deal, arguing that it would be unwise for the city to accept the one-time shot of revenue when it is owed a total of $44 million over the course of the existing power authority agreement.

Choolokian said that the NYPA deal, as it was originally proposed, is still off the table.

“That’s something we’re not even interested in,” Choolokian said.

Dyster said individual council members’ public opposition to the NYPA deal has factored into the city’s rating downgrade.

“For council members to be preemptively taking a position on the NYPA deal, it’s not helpful to us in defending our bond rating,” Dyster said.

Taking the NYPA deal off the table tells bond rating agencies that the city will not exercise that option if the casino revenue is not delivered, and so will run out of cash, Dyster said.

“Criticizing the NYPA deal puts a downward pressure on the bond rating,” Dytser said.

City Controller Maria Brown expects the latest bond rating downgrade will make it much more difficult - and likely more costly - for the city to go to the bond market to raise funds in the future.

“I don’t know what the other two rating agencies will do as a result of this action,” Brown said. “This is not good for the city. It’s going to put a huge financial burden and cost on us, even if we can borrow.”

With mug of Dyster Paul Dyster Waiting on casino cash decision

Contact reporter Justin Sondel at 282-2311, ext. 2257