NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance effort, Fitch Ratings affirms the city of Niagara Falls, NY's (the city) general obligation (GO) bonds as follows:
--Approximately $68 million in outstanding GO bonds at 'A'.
The Rating Outlook is Stable.
KEY RATING DRIVERS:
--The city maintains an adequate financial
condition while relying on vulnerable revenue derived from state aid,
county sales tax distributions and its share of casino revenues.
--The
city's revenue base has expanded due to economic activity from the
Seneca Niagara Casino and local development.
--Capital needs are
manageable and funded in part by pay-go from casino revenues.
--Tightly
balanced financial operations are constrained by limited flexibility
under the property tax cap.
--Wealth levels are below average, and
unemployment remains high.
--Debt burden is high on a below average
tax base.
SECURITY:
The bonds are general obligations of the city for which
the city has pledged its full faith and credit and unlimited ad valorem
tax.
CREDIT PROFILE:
Located on the western edge of New York on the
U.S.-Canadian border, the city of Niagara Falls is home to one of the
world's unique natural attractions, Niagara Falls. Millions of people
visit Niagara Falls annually, and the city's appeal to tourists has
increased since the opening of the Seneca Niagara casino in 2002, the
addition of new hotels, and prime outlet shopping. Additional economic
expansion efforts by the city have resulted in new restaurants and
additional retail store openings, an ice rink and two new
apartment/housing complexes in the last year. A former shopping mall
located downtown, closed since 2000, is being replaced with a new
culinary school for the Niagara County Community College, a $17.1
million project. New restaurants, retail shops and a parking facility
will complement the site with a projected opening date next summer.
Unemployment rates for the city have historically been above the state
and national rates and remain so in May of 2011 at 9.7%, compared to the
state's 7.8% and nation's 8.7% rates. Wealth levels are low, with per
capita and median household income levels below state and national
averages.
The city's financial position has shown relative improvement and stability since the beginning of the decade and maintenance of a strong level of reserves is an important credit factor. State-shared casino revenues have contributed to higher reserve levels as these revenues support capital projects and debt service costs. Audited 2010 results show a $20.3 million unreserved general fund balance, up from $20 million in fiscal 2009, totaling a solid 24% of general fund spending. The city realized a $7.9 million operating surplus before transfers and did not have to use $2 million of its appropriated general fund balance. Additionally, $5 million was transferred to the city's special projects funds offsetting amounts budgeted for capital projects. The city realized increases in revenues from its share of sales taxes, the sale of city assets not budgeted for, and lower than budgeted health insurance claims. Additionally, the city had prudently instituted an expenditure freeze mid-year to help offset a $300,000 cut in state aid that occurred after the city's budget was passed.
The fiscal 2011 budget represents a 4.25% increase over fiscal 2010 actual results and is closely balanced including $5.8 million in the use of one-time revenues from the city's special projects fund ($2.55 million), debt service fund ($2.5 million) and the remainder of its state-provided Aid and Incentives for Municipalities (AIM) fund balance ($0.8 million). The budget also includes a conservative estimate of revenues from the casino projected to cover debt service payments and other discretionary programs. The city has a practice of using reserves to support its budget and to manage tax increases, resulting in flexibility under the city's constitutionally required tax rate cap of no greater than 2% of the five-year average assessed value. The city only used 81% of the tax limit in fiscal 2011, down from 91% in fiscal 2008. The new state enacted 2% spending cap is applied to the city's tax levy, contrary to the city's own tax rate cap, but should not be problematic for the city due to its conservative budgeting practices and history working with a 2% tax rate cap.
The city experienced a 9.7% decline in population since year 2000 to 50,193, as reflected in the 2010 census results. This will result in an estimated $600,000 reduction in its distribution of state sales tax revenues in fiscal 2011 due to the allocation being driven by population. This reduction has been factored into the 2011 budget, but because of a history of very conservative estimates of sales tax revenues and the current influx of Canadian shoppers taking advantage of the decline in the U.S. dollar, no impact is expected to be felt by the city this fiscal year. According to management, fiscal 2011 year to date operating results have been on track based on monthly internal reports. This reporting practice enables the city to closely monitor operations and make spending adjustments when necessary, which Fitch looks at favorably.
The city has traditionally paid for a portion of capital projects and offset debt service costs with the use of its portion of a casino revenue sharing agreement with the Seneca Nation of Indians and the state of New York. Because of a dispute between the nation and the state over the compact, shared revenues from the casino are past due for fiscal 2010 totaling $4.4 million. This amount is listed as a receivable on the city's balance sheet. Management has indicated the amounts due to the state by the casino and then to be distributed to the city are being held in escrow by the Seneca Nation. Fitch believes the overdue receivable is mitigated by the city's strong cash balance ($23 million as of fiscal year end 2010), but a prolonged delay in the receipt of overdue and future casino revenues could result in financial pressure.
Continued financial stability will rely heavily on the city's ability to conservatively budget its operations including the management of increasing employee pensions and health care costs. City employees participate in the New York State and Local Employees' Retirement System (ERS), the New York State and Local Police and Fire Retirement System (PFRS) and the Public Employees' Group Life Insurance Plan each cost sharing multiple-employer, public employee retirement systems administered by the State. The city has historically made 100% of its annual required contributions to the systems and combined pension annual required contributions (ARC) totaled $5.4 million, an increase of $1 million over 2009 levels, and 6.4% of general fund spending. The city makes pay-as-you-go contributions towards its other post employment benefit costs and paid $7.4 million in fiscal 2010, equal to 52% of its annual OPEB cost. The city's unfunded OPEB liability was a high $195 million, as of Jan. 1, 2010, based on a conservative 4% rate of return.
Direct debt levels are currently low to moderate on a per capita basis of $1,327, but above average at 5% of taxable market value. Overall debt levels are higher with the inclusion of school district debt, but much of that debt is supported through state building aid. The city anticipates the issuance of approximately $7 million in new bonds at the end of this summer to fund capital maintenance projects and road improvements boosting debt levels marginally. The city's 10-year capital improvement plan includes a combination of pay-as-you go projects and conservative future debt issuances which will be addressed by management in fiscal 2013 and beyond.
Additional information is available at www.fitchratings.com.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating
Criteria', dated Aug. 16, 2010;
--'U.S. Local Government
Tax-Supported Rating Criteria', dated Oct. 8, 2010.
Applicable Criteria and Related Research:
Tax-Supported Rating
Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S.
Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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