Fitch Ratings dropped Niagara Falls, N.Y. general obligation debt three notches to BBB from A late Thursday. Fitch also placed the debt on rating watch negative.
The action affects $69 million in GO bonds.
The city’s financial condition has rapidly deteriorated. This is partly due to the city’s failure to receive expected payments from the Seneca Nation, which operates a casino in Niagara Falls. They had an agreement with the state government to pay it a portion of casino revenues. While they did this through most of last decade, they have not done so since 2009 because of a dispute with the state.
In the agreement the state shared a portion of the revenues with Niagara Falls and two other New York communities. None of the communities have received any of this money since 2009.
Niagara Falls government now anticipates running out of cash in late summer unless it can find some other source of money.
The Senecas are now in binding arbitration in their dispute with New York and the communities over the casino money. The Niagara Falls mayor believes that the arbitration panel will rule in favor of the state by July. Since the Senecas have placed money in escrow, if that were the case the city would immediately get the money he believes it is owed.
However, the city is now working to develop contingency options to get cash in case this does not happen.
Fitch director Kevin Dolan also noted the city has weak economic indicators, limitations on its ability to increase property taxes and high pension and other post-employment benefits.
On the other hand, he city remains a major tourist attraction, Dolan noted.
Moody’s has the debt under review for a downgrade and S&P has a negative outlook associated with its rating.
