Moody's Investors Service has downgraded to A3 from A1 the underlying rating on the City of Schenectady's (NY) $34.6 million of outstanding general obligation debt. Concurrently, Moody's has assigned a negative outlook. The bonds are secured by the city's general obligation pledge as limited by the Property Tax Cap-Legislation (Chapter 97 (Part A) of the Laws of the State of New York, 2011).

The downgrade reflects the city's declining financial position, which is expected to deteriorate further in fiscal 2012 as a result of delinquent real estate taxes coupled with rising employee benefit expenditures. The rating also factors in the city's tax base that has been relatively stable until a moderate decline in 2011 and 2012, with potential further declines going forward.. The rating also reflects the city's above average debt burden, along with its below-average socio-economic indicators.

The negative outlook reflects the expectation that the city's financial pressures will continue to increase and further narrow the city's financial position in the near term.

Effective January 1, 2012, all local governments in New York State are subject to a property tax cap which limits levy increases to 2% or the rate of inflation, whichever is lower. While school district debt has been exempted from the cap, debt has not been exempted for all other local governments. Moody's believes that the risks associated with the property tax cap remain unchanged and we do not foresee making a rating distinction between debt subject and not subject to the cap. For more information regarding the property tax cap please reference the Special Comment "New York Local Governments' Debt Under New Property Tax Cap to Be Rated the Same as Unlimited Tax General Obligation Debt " released May 14, 2012.

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