A financial hit from the COVID-19 pandemic added to already strained finances has dragged Niagara Falls, New York, to the verge of junk status.
Fitch Ratings downgraded the tourist city’s general obligation bonds one notch to BBB-minus from BBB last Friday, citing lost tax revenues during the public health crisis coupled with eroding reserves nearly three years after losing casino revenue-haring payments. The Seneca Nation of Indians cut off gambling monies paid to New York State, which were then distributed to Niagara Falls and two other host municipalities, in June 2017.
Fitch concurrently placed the city's debt on rating watch negative, which puts it in danger of a further downgrade from the lowest investment grade level. The downgraded Fitch rating is on par with Moody’s Investors Service, which rates Niagara Falls at Baa3 with a negative outlook. The city in western New York is rated one notch higher by S&P Global Ratings at BBB with a negative outlook.
“Draws on reserves since 2017 to support operations have strained financial resilience,” Fitch analyst Michael D'Arcy wrote. “Fitch expects revenues to decline in the near term given a continuation of the dispute between New York State and the Seneca Nation, combined with the depressive effects of the coronavirus pandemic on travel and tourism.”
D'Arcy noted the COVID-19 pandemic will likely have a negative effect on Niagara Falls’ hospitality, sales tax and parking revenues during the second quarter and potentially into the second half of the year. The city of roughly 48,000 people relies heavily on tourism for economic growth through visits to Niagara Falls State Park.
The withholding of casino revenue hampered the city’s financial flexibility the past three years as it turned to reserves and advances from the state to balance budgets, according to Fitch. D'Arcy noted Niagara Falls may require “substantial” cash-flow borrowing to combat revenue timing gaps by the end of this year unless state aid can offset suspension of gaming revenue transfers.
The city’s 2020 fiscal plan relies on staffing cuts, supplemental state aid, a property tax levy increase and new user fees to achieve structural balance. The state is expected to give the city $9.4 million in July to cover the lost casino funding.
The fate of future of casino payments to Niagara Falls will be decided by the courts. Last November, the U.S. Federal District Court of Western New York
“The pandemic adds a new element of uncertainty to Niagara Falls' economic prospects, given the duration of the pandemic. Its economic aftershocks will have a profound effect on domestic and international travel and tourism, to which the city's economy is closely tied,” D'Arcy said. “The city has limited gap-closing capacity, and Fitch expects the city will be challenged to restore financial flexibility following the economic downturn triggered by the coronavirus pandemic given its already pressured fiscal position.”
The press office for Niagara Falls Mayor Robert Restaino could not immediately be reached for comment.
