Niagara Gazette

September 13, 2013

Fitch Ratings says Niagara Falls finances are stable, removes 'negative watch'

By Mark Scheer
Niagara Gazette

Niagara Gazette — The city of Niagara Falls received some welcome news this week from one of its bond rating agencies.

Fitch Ratings on Wednesday announced that it has affirmed the city’s “BBB” bond rating and removed the city’s rating from “negative watch” while assigning it a stable outlook.

In a release issued by the ratings agency, Fitch indicated that the decision was based largely on the recent delivery of long-awaiting gaming revenue that had been tied up as part of a dispute between the Seneca Nation of Indians and the state of New York.

The ratings agency notes payment of casino revenues does not represent an end to concerns surrounding the city’s economic future and raises concern about what it describes as uncertainty about future revenue payments as outlined under a gaming compact that is set to expire in 2016.

“As a result of the delay in these payments, the city’s cash reserves were rapidly declining, and were projected to run out of cash before the end of 2013,” Fitch noted. “In light of this, Fitch placed the city’s debt on rating watch negative. The recent payment will restore these reserves and help the city fund some delayed capital needs. However, the ‘BBB’ rating recognizes that the city still faces a number of challenges, particularly a weak socioeconomic core and continued reliance on these revenues.”

Ratings agencies like Fitch periodically review the financial soundness of various businesses and municipalities to determine their credit worthiness. Higher ratings generally mean lower interest rates on borrowing for the entities involved. The city’s bond rating took several hits in recent months amid concerns about the lack of incoming casino revenue and its impact on overall city operations.

“BBB” is the lowest rating within a category known as “investment grade” for Fitch. 

Mayor Paul Dyster said that while financial challenges remain in Niagara Falls, Fitch’s affirmation of an investment grade rating should be viewed as a sign that the city’s finances have at least stabilized in the near term.

“We were very much concerned that our bonds remain investment grade status,” Dyster said. “We were particularly concerned in light of the casino revenue situation that we would suffer a further downgrade. This takes some of the pressure of us for the time being, which is what we expected.”

In its press release, Fitch Ratings notes that its bond rating for Niagara Falls is “sensitive” to the overall state of the city’s economy. It recognizes “weak economic indicators” in the city, including wealth levels that are below average and high unemployment rates. It also cites as a benefit the city’s status as a “major tourist attraction, drawing visitors from around the world.”

Fitch notes that the city is dealing with increasing pension costs and other post-employment benefits that are high as a percentage of market value. It also characterizes the city’s overall debt levels as “high.”

The ratings firm assigned a “negative” watch to the city’s bond rating as part of its last review due to rapidly declining cash reserves and a projection that without gaming revenue the city would run out of cash before the end of 2013.

Earlier this year, after years of haggling, the state and the Seneca Nation agreed to settle their differences and move forward with an agreement that would allow the Senecas to continue to enjoy exclusive rights to operate Stage III gaming facilities in Western New York, including Seneca Niagara Casino in Niagara Falls. In August, the city received roughly $89 million in overdue payments from its share of the state’s take of gaming revenue from Seneca operations.

In its ratings release, Fitch notes that the existing gaming compact between the state and the Senecas expires in 2016, with a provision for renewal through 2023. Fitch expresses some concern about the “volatile” nature of the casino revenue stream moving forward.

Dyster said he believes those concerns will ultimately prove unfounded as it appears both the state and the Senecas are on the same page when it comes to revenue distribution for at least the next decade. He said discussions he’s had with Gov. Andrew Cuomo’s office and representatives from the Seneca Nation of Indians suggest that as long as both sides are in compliance with the terms of the compact when 2016 arrives they will likely agree to continue operating under the terms of the existing compact through 2023.

Fitch said it will continue to monitor the performance of the city’s ongoing operations and efforts to develop the local economy in the months and years ahead.

Dyster acknowledged the long-awaited casino revenue payment is not a cure for all that ails the city’s finances, but said it does allow the city to regain its financial footing for now.

“We have a ways to go yet,” Dyster said. “The challenge for us is to show that we are continuing to use our casino revenues wisely and I think we have done that in the past.”

Big red number 2016 Year casino compact runs out. Fitch Ratings upped city's outlook due to casino cash payment.