The outlook on Niagara Falls, N.Y., bonds was revised to negative from stable by S&P Global Ratings Tuesday stemming largely from the Seneca Nation of Indians ceasing a casino revenue sharing agreement that had benefited the city.
S&P affirmed the city’s BBB-plus long-term credit rating and assigned the BBB-plus rating to an upcoming $8 million series 2017 general obligation bond sale for capital projects that include reconstructing an ice pavilion.
"The outlook revision reflects our view of the city's revenue and expense structure and a decision by the Seneca Nation to stop payments of shared casino revenues with the state of New York -- 25% of which are passed through to the city -- due to a difference in the interpretation of its casino compact," S&P Global Ratings credit analyst Rahul Jain said in a statement.
Jain noted that the city has relied heavily on the casino payments to achieve balanced operations, which exceeded 15% of operating revenues in the 2016 fiscal year.
The Seneca Niagara Casino and Hotel is one of three gaming facilities run by the tribe, which announced in March that it would stop remitting revenue sharing payments with the state for the second time in less than a decade. The Senecas previously withheld casino revenue to Niagara Falls from 2010 to 2013 and the city was forced to dip into its reserves with the fund balance falling from 24.4% in 2009 to negative 0.2% in 2012, according to an April Moody’s report.
New York State awarded the Seneca tribe exclusive rights in 2002 to operate three casinos in Western New York in exchange for up to 25% of slot machine revenues to be split between the host municipalities and the state.
The compact ends on Dec. 31, 2023, which Jain said highlights the need for Niagara Falls to reduce its reliance on casino funds for operations. It budgeted $11 million in casino revenue for the 2017 fiscal year and also used $2.4 million from its fund balance to balance operations, according to Jain.