Niagara Gazette

March 15, 2013

Another dip for city bond rating

By Mark Scheer and Justin Sondel
Niagara Gazette

Niagara Gazette — Another agency has downgraded the city's bond rating. 

Fitch Ratings announced this week that it has placed a "rating watch negative" on $69 million of outstanding general obligation bonds in Niagara Falls while downgrading the rating on the bonds from "A" to "BBB."

Fitch examines municipal finances to determine their credit worthiness. Higher ratings generally result in lower interests rates for municipal entities seeking to borrow funds. The ratings are often viewed as an indication of a municipality's financial position and condition. 

In January, another rating agency, Moody's, downgraded the bond rating in Niagara Falls from A2 - considered "upper medium grade" on its ratings system - to Baa1, which falls under the "lower medium grade" category.

Fitch Ratings made its assessment based on several factors, including the city's "deteriorating" financial condition due to delays in casino revenue payments, property tax limitations, increased costs for items like post-employment benefits for employees and reliance on revenue from "potentially violatile" sources such as state aid, county sales tax distribution and casino dollars. 

Fitch did note the "sensitive" situation that currently exists in the case of the Falls, referencing the ongoing casino revenue arbitration process between the state and the Seneca Nation of Indians. The rating agency also cited the city's draw as a tourism destination as a positive aspect when considering its financial future. 

As was the case with the earlier rating from Moody's, Fitch's assessment made it clear that the biggest concern facing the city's finances at this point remains the lack of incoming cash as a result of the ongoing gaming revenue stalemate. 

"The city's rapidly deteriorating financial position is leading to an imminent cash shortfall," Fitch's bond rating assessment reads. "City officials project that without an influx of funds, they will likely run out of money in the third quarter of 2013. The compact dispute between the Senecas and the state is currently binding arbitration and the city expects that it will be favorably resolved before the summer." 

Fitch's assessment also references a proposal that has been rejected by the city council to accept an advance on future revenues from the relicensing agreement with the New York Power Authority as a "short-term, and potentially costly" solution to the current financial difficulties. 

 "Fitch will closely follow future developments in this situation in the near future," the agency noted. 

During an interview Friday, Mayor Paul Dyster - who has been under pressure from city lawmakers to develop a plan for dealing with the pending revenue shortfall - said he remains confident the casino revenue situation will be resolved to the city's satisfaction this summer, allowing it to move forward with the revenue it needs. 

"My hope is that after there is a result in the arbitration process or a negotiated settlement that the bond rating agencies will go back and look at the city's situation" Dyster said.

In the meantime, he said he believes it's important for city officials and residents to avoid speculation about the potential outcome of the arbitration process. 

"The situation is serious enough without piling other speculation on top of it," Dyster said.