State cash infusion eases fiscal strain on Niagara Falls
A one-time payment to Niagara Falls from New York State to offset disputed casino revenue-sharing losses helps the cash-strapped city in the short run, rating analysts said.
The state recently pledged $12.3 million for Niagara Falls to help it achieve structural balance in the wake of a June 2017 decision by the Seneca Nation of Indians to halt casino transfer payments. The dispute over the Seneca casino gambling monies that were paid to the state and then distributed to host municipalities is heading to arbitration with no timetable for a resolution.
S&P Global Ratings analyst Thomas Zemetis wrote in a report Friday that Niagara Falls’ proposed $91.48 million budget relies on the state’s $12.3 million revenue pledge to balance the spending plan. Around $10.54 million of the state funding would be used for general fund operations with $1.8 million designated toward reserves if the budget is approved. The fiscal plan also hinges on alternative fee-based revenue and departmental expenditures savings, according to S&P.
“Although the proposed revenue and expenditure reforms and a non-recurring state revenue pledge may alleviate performance pressure on the city for the upcoming budget year, S&P Global Ratings believes Niagara Falls will contend with significant headwinds to restore structural balance beyond 2019,” said Zemetis in his report. “Niagara Falls' long-term creditworthiness will hinge on ongoing financial planning to close the revenue and expenditure budget gaps and rebuild sufficient reserves to absorb future cost pressures.”
S&P and Fitch Ratings both downgraded Niagara Falls’ one notch during the summer summer to BBB citing budget challenges from the lost casino revenue. Moody’s Investors Service rates Niagara Falls a notch lower at Baa3 after dropping the city one notch in October 2017.. All three rating agencies have negative outlooks.
Moody’s called New York’s cash infusion a "credit positive" for Niagara Falls in an Oct. 4 report because it delays “a significant liquidity strain” for at least one year. Absent the state assistance, the city would likely deplete its internal liquidity around the end of the 2019 fiscal year, according to Moody’s analyst Chris Salcedo. Around 60% of the city’s revenue is comprised of sales taxes, state aid and casino revenue.
“With the additional time, the city will need to tap new revenue streams or implement recurring expenditure reductions to balance deficit operations that last year totaled $14 million in its operating funds,” said Salcedo in the report. “The city’s primary challenges include a weak revenue structure and expenditure reductions constrained by fixed costs, minimum staffing requirements and relatively lean employment operations.”
Niagara Falls was previously forced to dip into its reserves when the Senecas last withheld casino revenue from 2010 to 2013. When the earlier dispute was resolved, Niagara Falls received a lump sum of past due payments.
“City management previously indicated that they expected a resolution in fiscal 2018, but that window is quickly closing and progress has been slow,” said Salcedo. “A timely and satisfactory resolution of the dispute would be positive for the city's credit profile.”