New Rochelle Finance Commissioner Howard Rattner announced today that the City of New Rochelle’s Bond Rating will but downgraded tomorrow.
Rattner’s Statement
We have been informed by Moody’s Investor Services that our bond rating will be downgraded effective tomorrow 12/2/10. Moody’s will send official notification to the newswires on that date. You may recall that the city was upgraded to a rating of Aa3 in early 2007, the first such upgrade in about 70 years. Earlier this year, many of the rating agencies recalibrated municipal bond ratings to enhance the comparability of ratings across entire portfolios of credit ratings. At that time, Moody’s changed our rating to Aa2, a step above the previous rating. This was simply a change in scale and had nothing to do with credit worthiness. Recently, Moody’s performed a periodic “surveillance” on the city’s financial condition, a process they are required to do for all of the clients that they rate. As a result of that surveillance, Moody’s has downgraded the City’s bond rating from Aa2 to Aa3. While acknowledging the City’s sizeable tax base, wealth levels, and continued budget controls, Moody’s cites a weakened financial position resulting from declining sales tax and other revenues and the deterioration of our fund balance over the past three years. Moody’s has revised the ratings of 17 municipalities in New York State since the recalibrated rates were established. Fifteen of those ratings were downgraded including the Village of Harrison (downgraded from Aa2 to Aa3), the Village of Tuckahoe (downgraded from A1 to A2) and Monroe County (downgraded from A2 to A3). The City’s new rating of Aa3 is still a relatively strong rating and is considered by Moody’s to be “of high quality and subject to very low credit risk”. Comparatively, this rating is lower than White Plains, equal to Mount Vernon and stronger than Yonkers. The impact of this rating change will mean slightly higher interest rates on future debt obligations when the City goes to market.
Moody’s ratings for Long-term obligation ratings
Investment grade
Aaa: Moody judges obligations rated Aaa to be the highest quality, with the “smallest degree of risk”.
Aa1, Aa2, Aa3: Moody judges obligations rated Aa to be high quality, with “very low credit risk”, but “their susceptibility to long-term risks appears somewhat greater”.
A1, A2, A3: Moody judges obligations rated A as “upper-medium grade”, subject to “low credit risk”, but that have elements “present that suggest a susceptibility to impairment over the long term”.
Baa1, Baa2, Baa3: Moody judges obligations rated Baa to be “moderate credit risk”. They are considered medium-grade and as such “protective elements may be lacking or may be characteristically unreliable”.
Speculative grade (Also known as High Yield or ‘Junk’)
Ba1, Ba2, Ba3: Moody judges obligations rated Ba to have “questionable credit quality.”
B1, B2, B3: Moody judges obligations rated B as speculative and “subject to high credit risk”, and have “generally poor credit quality.”
Caa1, Caa2, Caa3: Moody judges obligations rated Caa as of “poor standing and are subject to very high credit risk”, and have “extremely poor credit quality. Such banks may be in default…”
Ca: Moody judges obligations rated Ca as “highly speculative”[7] and are “usually in default on their deposit obligations”.
C: Moody judges obligations rated C as “the lowest rated class of bonds and are typically in default,” and “potential recovery values are low”.
Special
WR: Withdrawn Rating
NR: Not Rated
P: Provisional
Who’s surprised by this?
I’m not and this is what you get when you borrow $2.3 million to balance your budget, $350k of which is going into a reserve account. Bramson & Co are actually proposing to borrow $350k to put in reserve, can anyone beleive that?
The credit rate agencies see right through this BS and know that the city’s budget isn’t balanced and that the city isn’t making the hard/painful desicions that would balance the budget and what does that mean? I most likely means that next years budget will be similarly unbalanced. I guess Noam won’t be borrowing the money that cheaply after all. Somebody keeps voting these idiots in and this is our punishment.
next year’s budget already has a $4.5mm hole
The 2011 budget is what it is because there is $4.5mm of a one-time cash infusion from Avalon (where we borrowed from our future cash flow). That money will not be there next year (although the City gets $1.5 mm each year for three more years but those are all one-time cash infusions from what amounts to the City selling off assets).
The $4.5 from Avalon will be gone, the pension costs will be there but we will also have a $1.6mm debt to the State to cover this year’s pension cost increase.
Does anyone know what the effective tax increase would be if you took out borrowing the $1.6mm for the pensions and the “borrowing” of the future cash flows on Avalon? It has got to be more than the 3.9% figure being circulated now.
Wow, I didn’t know about the
Wow, I didn’t know about the $4.5M coming from Avalon this year. That means we’re in real big trouble.
Aren’t they also borrowing an additional $700k to payoff the certioris?
I see no reason why they aren’t pulling the trigger on layoffs and I don’t mean through attrition. I just saw on the news this morning that Jersey City is laying off 70 to 80 cops, maybe we should be looking into something similar. While I don’t like the idea, something has to give and Noam and Chuck refuse to REALLY cut anything. We’re living way beyond our means. What’s next an income tax like Yonkers has? Maybe we should start charging city employees for parking? Maybe Firefighters could do more on their down time? Did I really need to have my garbage picked up on Monday and Wednesday last week? Probably not and the point is there are lots of ways to cut and it doesn’t always have to be painful.
Here’s the math
To reduce the tax increase by 1% there would have to be a $458,000 revenue source so without the one time infusions and bonding the tax increase would be;
3.9% proposed tax increase
9.8% $4.5 million Avalon non-recurring revenue
3.5% bonding $1.6 million for retirement costs
17.2% actual increase without one time cash
infusion & without bonding
It should be criminal!
The city should only be using the $4.5M to either
1. Fund the reserve;
2. Paydown debt; and/or
3. Some combination of 1 & 2.
To use the money for day to day expenses is almost criminal and a lost opportunity for the city to finally get on a sound finacial footing.
I don’t know how they get away with it. Do Noam and Chuck think the city’s financial problems are going away? Deferring the pain will only make it more painful. It’s time to face reality at city hall.