Moody's Investors Service downgraded Niagara Falls, N.Y.’s general obligation debt to one level above speculative grade, citing a delay in settling a dispute over a tribal casino.
The rating agency lowered the rating to Baa3 from Baa1 late on Monday and maintained a negative outlook on the city. The $65 million in outstanding debt is rated BBB-plus by Standard & Poor’s and BBB by Fitch Ratings.
The city and New York have a dispute with the Seneca Nation, which operates a tribal casino in Niagara Falls. The city is hoping to receive $17.3 million from the Senecas by midyear, once an arbitration panel decides the case.
The Senecas have put the money into an escrow account.
The delay in the arbitration decision is pressuring the city’s cash position, wrote Moody’s assistant vice president Robert Weber and vice president Geordie Thompson.
The downgrade is also due to the city’s high unemployment, low income levels, and elevated debt level.The city projects it will run out of cash as early as November if it does not get the Seneca money or does not find an alternate source of money.
The city is benefiting from increased tourism from neighboring Canada due to the Canadian dollar’s strong position relative to the United States dollar, the analysts wrote. This has led to reasonably strong sales tax receipts.
On the other hand, the city has limited flexibility raising revenue and negative unassigned fund balance.
S&P has the debt on CreditWatch Negative and Fitch has it Rating Watch Negative.
Niagara Falls Mayor Paul Dyster said he expects either a settlement to be reached or the arbitration panel to release its decision within six weeks. Dyster said he expects the Senecas will pay Niagara Falls the roughly $17.3 million that it is due.
City officials were hoping that Moody's would not feel it necessary to conduct a rating review until the end of the summer, Dyster said.
If the arbitration panel rules against Niagara Falls, the city has a possible arrangement with the New York Power Authority, Dyster said. The city would receive a payment of $13.4 million from the authority in exchange for forgoing 44 years of annual payments. The city could receive this money quickly, if it chose.
On April 16 The Buffalo News reported that New York Gov. Andrew Cuomo told the newspaper's editorial board that if New York loses the arbitration decision, New York would give Niagara Falls the Senaca-owed money. Dyster said he was unsure why Moody's did not take this into account in its rating change.