Fitch revises New York City outlook to negative
Fitch Ratings delivered the latest COVID-19 related hit to New York City's ratings on Tuesday, revising its outlook on the city to negative from stable.
Fitch, while affirming its AA rating on the city's roughly $39 billion in general obligation debt, said the new outlook applies to all bonds.
Moody's Investors Service undertook a similar revision on April 1.
"Longer-term economic and revenue growth may slow from historically robust levels," Fitch said in a statement. "Slower growth began to emerge before the coronavirus pandemic hit, and if it is sustained would be likely to make matching recurring expenses to recurring revenues more difficult."
City officials have forecast a $7.4 billion hit through the unprecedented loss of sales and income tax revenue from business closures, designed to offset virus spread. The pandemic itself, meanwhile, has strained the hospital system.
The watchdog Independent Budget Office, working with limited data available, had projected an even worse revenue hit, at nearly $10 billion. IBO expects the local economy will lose about 475,000 jobs from the second quarter of calendar year 2020 through the first quarter of 2021.
According to Fitch, slower ongoing revenue growth would also make the rebuilding of reserves more difficult following planned usage to meet near-term budgetary needs, given the sharp revenue declines that pandemic containment efforts have triggered.
"A resulting downward adjustment in Fitch's financial resilience assessment could lead to a downgrade," the rating agency said.
S&P Global Ratings and Moody's rate city GOs AA and Aa1, respectively.
According to data on the Municipal Securities Rulemaking Board's EMMA website, a block of city fiscal 2020 Series D, Subseries D-1 tax-exempt bonds maturing in 2039 that originally priced at 130.263 cents on the dollar and a 1.68% yield sold to a customer Tuesday night at a price of 124.191 cents and a 2.376% yield.
Fitch also affirmed its ratings on the following obligations, which the city supports through its commitment to appropriate for debt service:
- AA-minus for $637 million in New York City Health and Hospitals Corp. health system bonds and $582 million Hudson Yards Infrastructure Corp. revenue bonds, first indenture fiscal 2012 Series A;
- A-plus for $2.1 billion in Hudson Yards Infrastructure Corp . revenue bonds, second indenture fiscal 2017 Series A;
- and, AA-minus for $32 million special revenue bonds (New York City-New York Stock Exchange Project) Series 2019A and bank bonds associated with $30 million in special revenue bonds (New York City-New York Stock Exchange Project) Series 2004B, issued by the New York City Industrial Development Agency.
"Exceptionally strong budget monitoring and controls have been in place since New York City's fiscal crisis in the 1970s supporting Fitch's robust assessment of operating performance," Fitch said. "However, the long-term liability burden remains large relative to other highly rated local governments, and pressure to increase capital spending is an ongoing concern."
According to Richard Ravitch, a Volcker Alliance board member and longtime public finance official who helped broker the city's emergence from its mid-1970s fiscal crisis, this catastrophe is far different.
"There is little to learn from what happened in New York, Detroit and Puerto Rico," Ravitch said on a Volcker Alliance webcast, referencing the bankruptcy filings of the latter two. "They got in trouble largely because they used borrowed money to cover their operating expenses and the markets stopped lending to them and therefore they were insolvent."
Today, "it's not a function of bad budgeting," said Ravitch, a former lieutenant governor and former chairman of the Metropolitan Transportation Authority. Ravitch called the coronavirus crisis "far more significant in dollar volume than anybody faced before."
Mayor Bill de Blasio last week released his "wartime" $89.3 billion executive budget, which the 51-member City Council must approve by June 30. The council, in its first remote hearing on Wednesday, is scheduled to introduce a coronavirus relief package to help small businesses and tenants. The council is planning several budget-related hearngs over the next six weeks.
De Blasio also implored for additional help from the federal government. On Tuesday, Gov. Andrew Cuomo met at the White House with President Trump over direct federal support for state and local governments in a new pandemic relief package, and funding for expansive testing. Cuomo said he and Trump agreed on state-federal collaboration to double daily virus testing.
While the mayor's budget update shows an 8.3% decrease in spending, "clear understanding of the trajectory of the budget requires adjustments for the timing of spending, the use of reserves, and assumed federal aid," said Amy Champeny, director of city studies for the watchdog Citizens Budget Commission.
"The reliance on non-recurring federal aid, reserves, and Retiree Health Benefits Trust fund resources to support recurring spending contributes to the significant $5 billion fiscal year 2022 gap that ultimately will have to be addressed," Champeny added.
Correction: New York City was revised to negative from stable. The direction of the revision was backward in the original body of the story.