NEW YORK, Dec 3, 2010 — Moody’s Investors Service has downgraded to Aa3 from Aa2 the general obligation rating on the City of New Rochelle’s (NY) $108 million currently outstanding debt. The debt is secured by the unlimited property tax pledge of the city.
RATINGS RATIONALE
The downgrade to Aa3 reflects the city’s weakened financial position driven by declining sales tax and mortgage tax revenues. The Aa3 rating also factors the city’s sizable tax base that is expected to remain stable over the long term, above average wealth indices and moderate debt burden which is expected to remain manageable.
CHALLENGED OPERATIONS WEAKEN RESERVES
Structurally imbalanced operations over the past three years has led to a deterioration of the city’s financial position. The city’s financial reserves have declined to $7.2 million (7.1% of revenues) in fiscal 2009 from a high of $13.8 million (16.7% of revenues) in fiscal 2007. The declines have been mostly due to declining sales tax and mortgage tax revenues and interest earnings, even though expenditures were under budget for the year reflecting conservative budgeting and the continuation of expenditure controls. The city ended fiscal 2009 with a $5.3 million operating deficit, including General and Debt Service Funds, which resulted in total operating fund balance declining to $7.2 million or 7.1% of revenue, from $12.3 million or 12.0% of revenue in 2008. From fiscal 2005 to 2009 non-property tax revenues, which is primarily sales tax, varied between $25.3 million and $27.5 million annually or 25.3% to 27.4% of revenues, although challenging economic conditions and optimistic budget assumptions for fiscal 2008 and 2009 resulted in negative variances of $900,000 and $2.99 million respectively. The negative variance in sales tax coupled with the failure to fully replenish fund balance appropriation were the primary drivers of the city’s deficit in fiscal 2009. Favorably, in addition to General Fund reserves, the city holds $3 million in a Debt Service Fund, which is dedicated to the payment of debt service.
Similarly, fiscal 2010 operations are projected to have generated a fourth consecutive General Fund deficit, with the General Fund reserves declining by an approximate $700,000 to $6.5 million or 6.5% of estimated 2010 revenues. Steps have been taken to increase parking permit fees, which will help to raise revenues by roughly $400,000 per year and various expenditure controls, including staff reductions through a hiring freeze and attrition, have helped to mitigate the decline in recurring revenue sources. In the short-term the city hopes the advanced payment on a previously negotiated long-term land sale agreement will help offset some of the expenditure and revenue pressures that challenge the city’s operations. Starting in 2010, the city will collect an initial $3 million and then $1.5 million per year through 2014 as the result of a 1998 and 2002 deferred payment land sale agreement with a local developer. While these one-time revenues will help to offset declines in the General Fund, a return to structurally balanced operations will be a key rating driver going forward. Further declines in the General Fund reserves will put additional pressure on the rating downwards.
SIZABLE TAX BASE WITH ABOVE AVERAGE WEALTH
Moody’s believes that the city will continue to benefit from its sizable $11.7 billion tax base with above average wealth levels. The city is densely developed and is a largely residential community located approximately 16 miles northeast of New York City (G.O. rated Aa2 / stable outlook). Residents benefit from various employment centers, including New York City as well as within Westchester County (G.O. rated Aaa / stable outlook). Assessed values have declined at an average rate of 1.1% annually during the five years ended 2010, largely reflective of successful tax appeals by commercial tax payers and a declining real estate market. However, full valuation has increased an average of 5% annually over the same period, which is a decreased rate of growth as a result of declines in market values during recent years. Wealth levels in the city exceed state averages and full value per capita is a strong $157,653. The city experienced significant downtown residential and commercial development in the first half of the decade, major projects included Trump Plaza, (185 condominium units) and Avalon II (588 rental units); however, future growth is uncertain as no large projects are imminent.
DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE
Moody’s expects the city’s debt burden will remain manageable, given a below average direct debt burden of 0.9%, increasing to 2.1% when including the overlapping obligations of Westchester County and the New Rochelle City School District (G.O. rated Aa2 ) are taken into account. Debt service comprised an average 7.7% of fiscal 2009 operating expenditures, down from 12.5% in fiscal 2002. Principal is amortized at a satisfactory rate of 70.8% within ten years. Borrowing plans are minimal and include approximately $3 million bond anticipation notes in 2011.
What could make the rating go up:
-Structurally balanced budgets resulting in positive financial operations
What could make the rating go down:
-A greater operating loss in 2010 than what is current expected
-Continued trend of operating deficits
-Significant increases in debt levels
KEY STATISTICS:
2000 Population: 72,182
2008 Population: 74,115
2010 Full Valuation: $11.68 billion
2010 Full value per capita: $157,653
Direct debt burden: 0.9%
Overall debt burden: 2.1%
Payout of principal (10 years): 70.8%
FY 2009 General Fund balance: $7.2 million (7.1% of General Fund revenues)
FY 2010 General Fund balance (unaudited): $6.5 million (6.5% of General Fund revenues)
Per capita income as a % of State, 2000: 136.6%
Median family income as a % of State, 2000: 140.7%
Parity debt outstanding: $108 million
I was referring to Idoni. I
I was referring to Idoni. I should have used the word limited. Sorry for the confusion!
No confusion
As previously stated, the NR tax-cap brought NR an extra $9 million per year. In order to increase revenue by $9 million during that time the City would have had to raise taxes by 30% so to say that the tax-cap limited anyone is inaccurate. The bottom line is that the current and past administration gave the extra revenue derived from the tax-cap to wealthy developers like Capelli and Avalon in the form of tax abatements.
It was NR’s Sales Tax increase that brought in the $9 Million!
The tax cap didn’t bring in the $9 Million, it was the sales tax increase that came with it and I could do without that. Idoni & Co. wanted to get out of the tax cap provisions any way possible so I wouldn’t go giving him too much credit for keeping taxes low. The city’s budgets were as unbalanced then as they are now and that’s how the $9 Million got squandered.
Duhhhh
Duhhhh! The extra sales tax was what the tax-cap was all about so it was definitely the tax-cap that was responsible for the extra $9 million. Idoni thought he was a wheeler dealer but Tocci cut him off at the knees! It was all about desperation.
Part Time Mayor Full time Drag on the City of New Rochelle
I believe Bramson gave himself a nice raise along with the City Council members a few years back. We have seen criminal waste in the Department of Public works, The NR School District and I bet there are a number of other departments where this could exist. We have a ceremonial mayor who is part time when he chooses to be, full time when he chooses to control and if you really look they have quite a parlay going with a one sided party rule. Although quite elequent at slinging the BULL he has handed the keys to the City to developer after developer by fashioning who sits on the NRIDA and in the end Tax payers pick up the tab. Until he is purged from our City you will see the party will never end. Look around what he has brought.
That was depressing to read!
Who know Noam was fleecing the city dry? You certainly wouldn’t come out with that perception if you hear his take on things or read his blog.
Who knew the city blew through $7.2 million of reserves last year?
Same thing happened when Idoni (or his predessor but that’s before I started doing time in NR) put in the sales tax. Immediately there was a huge surplus and then Idoni slowly worked off the surplus w/years of unbalanced budgets, in part because his hands were cuffed by the tax cap that was part of the sales tax increase. When the reserves ran out, Idoni put in the library tax but he didn’t drop the city’s budget by the amount of the library’s budget which is why the first few library budgets were rejected by voters. That was a real spineless move on Idoni’s part to avoid the tax cap.
It wasn’t until I got involved w/the anti-Ikea effort that I realized how poorly the city was run. You could just see him drooling for the sales tax money that Ikea was supposed to bring in. Fortunately Ikea’s sales tax numbers weren’t very realistic and the way Idoni structured the deal, Ikea wasn’t going to pay any property taxes for years and the whole thing went down the tubes. That was a real bullet New Rochelle missed.
Tax cap “cuffed” New Rochelle – NOT
There is no way New Rochelle was; “cuffed by the tax cap” when the extra 1% brought in an average of $9 million per year which they blew on tax abated development. Sooner or later you reap what you sow.
I was referring to Idoni not
I was referring to Idoni not New Rochelle. I should have used the word limited. Sorry for the confusion!
Rating
Das ist nicht gut!
All governments should learn that you cannot secure bonds or anything else by “unlimited Property taxes,” or whatever it is that makes them think that life will go on as usual forever.