While Moody’s Investors Service cited multiple years of operational decline and three additional fiscal years of budget gaps in giving Yonkers, N.Y., a multi-notch downgrade, a spokesman for the city also blamed a new state law.
“We are handcuffed. This is a clear case of the property tax cap having a negative effect on a municipality,” David Simpson, director of communications for Mayor Philip Amicone, said Tuesday.
Moody’s on Monday lowered the city’s general obligation bonds by two notches — to Baa1 from A2 — and dropped the outlook to negative from stable. The moves affect $425 million of previously issued GO debt. Moody’s also lowered the enhanced rating to A2 from A1 on Yonker’s school-related debt that benefits from New York State’s school debt intercept program, contained in Section 99-B of the state finance law.
Affected are $89.2 million of Series 2011A GO bonds and $12.8 million of Series B school bonds, which the city is looking to sell later this month.
Yonkers, New York’s fourth largest city with a population of 195,976, borders New York City’s Bronx borough to the north.
Effective Jan. 1, the property tax cap that Gov. Andrew Cuomo signed in late June will take effect. Tax increases must be limited to 2% or the inflation rate, whichever is lower, although a two-thirds majority of the governing body, or voters in the case of school districts, can override. While the Yonkers district is exempt from the part of the law that deals with schools, most districts aren't.
Some analysts have said the law could squeeze localities by curbing their ability to raise revenue amid state and federal budget cuts, and could jeopardize bond ratings.
“What the state Legislature did was pass the buck,” Simpson said. However, he noted that Yonkers is not alone with its struggles in a bad economy. “We’re not the only municipality to get a downgrade and we won’t be the last one,” he said.
Moody’s said it would scrutinize the effect of the tax cap on debt that non-school districts will issue after Jan. 1.
According to Moody’s, Yonkers faces projected budget deficits in the fiscal years 2013 through 2015, while collective bargaining unit contracts are still unsettled.
“The negative outlook reflects Moody’s belief that the city will be challenged in the near term to restore structurally balanced operations, given projected gaps in future budgets,” the rating agency said.
The Series A GO proceeds will fund $35 million of tax-challenge settlements, $17.1 million for the Ashburn Avenue renewable project, $13.7 million for a lighting project along the Saw Mill River, and $24 million for other capital projects. Series B proceeds will fund improvements to school buildings, for $10 million, and technology improvements, for $2.8 million.
Also on Monday, Standard & Poor’s withdrew its rating on Scranton, Pa.’s GO debt at the city’s request, three days after it slashed the rating three notches to BB-minus from BBB-minus, and placed the rating on negative watch.
S&P said Scranton might be unable to generate cash flow to meet obligations, including a $9.25 million principal payment on tax anticipation notes due in 2011.
“Although city administrators have a tentative plan to address the city’s cash-flow needs, we believe there is implantation risk because it requires approval from the City Council,” analyst Linda Yip said in a statement.
Standard & Poor’s said the rating also reflected continued reliance on stopgap funding to balance finances, lack of a long-term fiscal plan, and a local economy coupled with high unemployment.
Messages were left with Mayor Christopher Doherty seeking comment.
Standard & Poor’s move on Friday came two days after Moody’s whacked Scranton’s county, Lackawanna, with a five-notch downgrade to a speculative-grade Ba3 from Baa1.
Moody’s said the rating, which affects $202.7 million of outstanding GOs, remains under review for downgrade or withdrawal.
