New York State government is taking three steps to aid Yonkers, N.Y., which Moody's Investors Service calls a credit positive for the city.
Moody's assistant vice president Robert Weber said the steps will help the city deal with a $55 million gap in the Yonkers Board of Education fiscal 2012 - 2013 and 2013 - 2014 operations. The gap is equal to 6% of the city's budget.
Moody's rates Yonkers Baa1 on review, direction uncertain.
Yonkers fiscal year ends on June 30.
Yonkers is one of five cities in New York that are fiscally responsible for their school systems. Outside the five cities, the state's education boards have taxing powers.
In state budget legislation passed March 31, the government included immediate steps to aid Yonkers, Weber said.
First, the government is providing $28 million in one-time additional aid to address the gap. Second, the government is in addition increasing state aid to the Yonkers board by 7.7%, compared to an increase of 5% statewide. Third, the government has given the city permission to sell up to $45 million in deficit financing, subject to certification of the New York state comptroller.
A large accounting error by the Yonkers board caused the $55 million gap. The error was detected in January.
Due to the error, the board had to use reserves to cover the deficit in fiscal 2013, leading its reserves to decline to 3.1% of revenues. The board expects to essentially exhaust its reserves in fiscal 2014. Without the state legislation, Yonkers' own non-education reserves would have declined sharply to 1.7% of revenue at the end of fiscal 2014. With the legislation the city expects to end fiscal 2014 with reserves at 6% of revenue.
The board gets its money from the city and the state. Up to now, the city has controlled how much money to give the board. With its new budget, the state also is giving Yonkers the power to control how the board spends the money.
The state education department will also start reviewing the budget. The state comptroller will continue to oversee the board's budget. (It missed the earlier accounting error.)
"We expect the addition of the state education department as an overseer of operations will reduce the likelihood this situation repeats," Weber said.
The state's actions for Yonkers "gives the city options to deal with the budget shortfall," said Christine Gilmartin, communications director for Yonkers. "We're thankful to the governor and the state legislature."
Yonkers is immediately north of New York City and has about 196,000 residents.
