New York City’s downgrade by Moody’s no surprise, observers say
New York City’s downgrade by Moody’s Investors Service, municipal bond and budget analysts say, underscores the need for the city to look within for efficiencies even if it receives state or federal help.
Moody’s, citing the effect of COVID-19, lowered the city’s general obligation bond rating late Thursday, to Aa2 from Aa1. The move affects $38.7 billion of city debt. The new rating will apply to the city's $900 million fiscal 2021 Series C issuance coming to market next week.
Moody’s similarly lowered the state’s GO rating.
Mayor Bill de Blasio's budget team has projected a $9 billion revenue gap through the next fiscal year. The mayor is seeking $12 billion from the federal government, which is stalled over the next rescue package, and is also seeking permission from New York State to borrow to cover operating deficits.
“I think it is not surprising that the city was downgraded given that New York City was the epicenter of the pandemic, which certainly has its costs,” said Howard Cure, director of municipal bond research for Evercore Wealth Management. The downgrade, he added, also speaks to the need to craft a structurally balanced budget using recurring savings.
“The threat of laying off 22,000 employees if the city isn’t permitted to deficit borrow is counterproductive and creates a false comparison,” Cure added. “The [Citizens Budget Commission] outlines effective cost savings measures that seem very reasonable.”
De Blasio recently announced furloughs for some city staff and said large-scale layoffs may follow.
Andrew Rein, president of watchdog CBC, said Moody's “correctly identified the failure of the city to implement greater recurring savings and to deliver the promised $1 billion of labor savings months after the budget was adopted.”
Rein called on several stability measures including workforce reduction through attrition, more efficient services and changes to health and welfare benefits.
“It shows that borrowing, absent a serious cost-cutting plan that takes into account several future scenarios — good, moderate, bad — is not going to be a way out for New York,” said Nicole Gelinas, a senior fellow with the Manhattan Institute for Policy Research.
“The market might be willing to lend for some operating expenses, but not without a far more realistic budget plan,” Gelinas said. “The city has never said what goal it would be borrowing toward. Of course, they have TFA, too.”
The Transitional Finance Authority, which issues debt to supplement the city’s capital program, holds nearly $39 billion in future tax secured debt and $8.3 billion in building aid revenue bond debt.
According to Chicago-based watchdog OpenTheBooks.com, more than 114,000 city employees made more than $100,000 in 2019, a 50% increase in that salary level over three years. That included plumber helpers and thermostat repairmen who made up to $173,000 and $199,000, respectively.
S&P Global Ratings and Fitch Ratings assign AA ratings to the city’s GOs.
According to data on the Municipal Securities Rulemaking Board's EMMA website, a block of Fiscal 2013-I GO bonds maturing in 2023 that originally priced at 114.806 cents on the dollars and a 2.35% yield, sold to a customer Thursday at a price of 109.736 and a 0.588% yield.
Other Moody’s downgrades were to Aa3 from Aa2 on roughly $4.5 billion of appropriation-backed debt issued through the Hudson Yards Infrastructure Corp., the city's Health and Hospitals Corp., Industrial Development Agency, New York City Educational Construction Fund and the Dormitory Authority of the State of New York.
Also, Moody's announced it lowered to A1 from Aa3 the rating on the New York Convention Center Development Corporation (NYCCDC) senior lien bonds and to A3 from A2 the rating on the NYCCDC's subordinate lien bonds. The outlook on the NYCCDC bonds is negative.