Liquidity boost returns upstate New York village to investment grade
Johnson City, New York, regained an investment grade after a dramatic improvement in the village government’s financial health.
Moody’s Investors Service upgraded Johnson City’s long-term issuer rating to Baa3 from Ba1 citing the village’s fiscal turnaround since it experienced a liquidity decline at the close of the 2015 fiscal year that prompted a four-notch downgrade in June 2016. Moody’s also revised its outlook to stable from negative.
The upstate village, which borders Binghamton, had a population of 14,835 as of 2016, according to Moody's.
“Reserves and liquidity have improved dramatically over the last three fiscal years, reflecting improvement in the village's budgeting and financial management,” Moody’s analyst Isaac Rauch wrote in a Dec. 17 report. “The village has benefited from recent tax base growth, but faces long-term challenges in its local economy.”
Johnson City grew its available fund balance during the 2016 fiscal year to $3.3 million, or 14.5% of revenues, from just $31,000 the previous year following a $4.6 million transfer of bond proceeds from the village’s newly-created capital projects fund. The village then transferred an additional $589,404 in bond proceeds in the 2017 fiscal year for a $1.3 million surplus.
Rauch noted that an expanded tax base is key for Johnson City to have continued credit momentum because the village is facing a tax appeal from its largest taxpayer, the Oakdale Mall. The mall, which accounted for roughly 8% the village’s property tax revenues, is seeking a reduced assessment and refunds for the last three tax years after it lost three retail anchors.
“The long-term health of the mall is in doubt, and it will likely account for a diminished share of the tax base going forward regardless of the outcome of the appeal,” said Rauch. “Continued tax base growth should help the village absorb adverse effects from the tax appeal, but pressure on the village’s top taxpayer represents a significant headwind for an already challenged local economy.”
Johnson City's 2016 downgrade came as the village confronted outstanding union contracts that pressured its budget. The village is expecting to end 2018 with a balanced budget and a modest deficit of around $90,000 driven largely by salary increases paid for police and fire contracts settled during the year. The 2019 budget increases appropriations by 3.7% mainly for increased salaries to firefighters and police officers along with a 1.9% property tax levy increase.
Rauch noted that the village has above-average fixed costs along with elevated leverage that will rise when it needs to issue debt on behalf of its sewage treatment plant. The plant, which is co-owned by Johnson City and Binghamton, is in the midst of an estimated $365 million reconstruction project for which the two municipalities are slated to issue roughly $330 million of debt. Johnson City has issued approximately $50 million of the $149.2 million of bonds slated for the project.
Rauch said Johnson City could receive an additional upgrade if it achieves operating surpluses that lead to growth in liquidity and reserves along with continued tax base expansion. The village could dip back into junk territory if it incurs operating deficits, a tax base contraction or worst-than-expected outcomes from tax appeals or debt burden growth beyond projections.
Johnson City’s bonds are secured by the village's general obligation pledge as limited by New York State's legislated cap on property taxes adopted in 2011.