Niagara Gazette

January 9, 2013

Rating agency downgrades Falls' bond rating, citing casino cash concerns

By Mark Scheer
Niagara Gazette

Niagara Gazette — The ongoing casino revenue dispute between the Seneca Nation of Indians and the state and cash concerns caused largely by a lack of incoming gaming revenue are now having an impact on the bond rating in the city of Niagara Falls. 

Moody's Investors Service announced Wednesday that it has downgraded the city's bond rating and placed it under review for further downgrade. 

In a release issued by the agency, Moody's said the downgrade is directly related to casino cash concerns, including the failure of budgeted gaming revenue to arrive as expected and the uncertainty surrounding future payments. The agency also warns that an unfavorable resolution to the dispute could result in additional financial challenges for the city and, perhaps, another downgrade in its bond rating. 

"The downgrade reflects significant declines in the city's general fund liquidity and reserve levels beginning in fiscal 2010, due primarily to budgeted casino revenues that have not been remitted to the city," reads the agency's "Summary Ratings Rationale." "The rating also incorporates the city's high unemployment, depressed wealth levels, an elevated debt burden and a moderately sized tax base. Additionally, the rating reflects the uncertainty surrounding the outcome of a dispute with the Seneca Nation and the state over the casino revenue and the ongoing pressure that the lack of the revenues will continue to place on the city's finances during the dispute. An unfavorable resolution of the dispute could result in additional credit weakness and downgrade."

Reached by telephone while returning to the Falls from Albany where he sat in on Gov. Andrew Cuomo's annual state of the state address, Mayor Paul Dyster said he was alerted to the downgrade while at the state capital but had not yet had a chance to view any information supplied to the city by Moody's. Dyster said he did alert several state officials to the downgrade in an effort to let them know the level of impact the longstanding revenue dispute is having on the city and its finances. 

Moody's is one of several agencies that examine municipal finances to determine their credit worthiness. Higher ratings generally result in lower interests rates for cities and other municipal entities. Lower interests rates make it less expensive for communities like Niagara Falls to borrow money for large capital projects, including infrastructure repairs. 

Moody's downgraded the city's bond rating from A2, which is considered "upper medium grade" on the agency's rating system, to Baa1 which falls under the "lower medium grade" category. 

Dyster described the agency's bond rating downgrade as a "double whammy" for Niagara Falls, noting that the city has not in recent years been able to rely on casino revenue to pursue large-scale capital projects and now would likely face higher interests rates should it attempt to borrow money to finance such projects in the future. 

"I think it's an unfortunate consequence of the failure to resolve this dispute," Dyster said. 

While in Albany, Dyster said he also discussed the status of the gaming dispute with several state officials, including Lt. Gov. Robert Duffy.

"I had the opportunity to talk briefly with the lieutenant governor about the situation but I don't want to comment on it at this time," he said. 

In its release, Moody's notes that the city's rating has been placed under review for further downgrade "pending receipt of updated financial information concerning projected cash flows for fiscal 2013 in order to determine the magnitude of additional operational and liquidity pressures." 

The release counts among the city's strengths proximity to the Canadian border, relatively weaker U.S. dollar that has resulted in sales tax stability and location which continues to drive tourism and local development. Among the community's challenges, Moody's notes the loss of a major revenue source as a result of the gaming revenue dispute and "narrowed general fund liquidity and negative unassigned fund balance" as well as "elevated debt burden."

The Moody's release also recognizes the potential for the city's bond rating to either go up or down in the future. Under the "what could make the rating go up" section, it lists "favorable" resolution of the casino cash dispute and "trend of structurally balanced operations resulting in significantly improved liquidity and general fund balance. Conversely, under reasons why the rating could go down, it lists an unfavorable resolution to the casino revenue dispute, continued deterioration of general fund balance and significant decline in taxable value. 

Mug of Dyster Paul Dyster Looking in to report