Utica’s credit rating lowered again
Utica’s credit rating is under assault — cut by a second agency then cut for a second time in three months by another.
The city’s rating has been cut two notches to by Fitch Ratings amid concerns about weakening financial margins.
The assessment of the city’s creditworthiness on general-obligation bonds was dropped from A- to BBB by the municipal credit rating agency. Fitch’s outlook is stable. Triple-B is two rungs better than junk territory, according to the Wall Street Journal.
Moody’s Investors Service lowered the long-term rating for the city a second time. It first dropped the rating in February — to A3 from A2 — and assigned a negative outlook. Now, the firm has downgraded Utica’s rating to Baa1, affecting $64.99 million in outstanding rated debt. "The outlook remains negative," Moody’s noted. The downgrade "reflects fiscal deterioration beyond what the city previously projected. The city’s continued structural imbalance has resulted in ongoing draws on fund balance and weakened liquidity."
Utica is the county’s largest city, with a population of 62,235, and is home to many county functions. The city’s individual poverty rate is twice the national average. The local unemployment rate was 8.2 percent in April, down from the 8.8 percent rate of March.
"Given already limited flexibility, credit quality will depend on management’s ability to address unforeseen negative fiscal developments," the credit agency said.
Mayor Robert M. Palmieri took office Jan. 1 and spent considerable time on preparation of the 2012-13 budget as he sought to wipe out a $7 million gap. In its report, Fitch notes the city made some expenditure cuts and enhanced revenues with its new budget. Furthermore, the credit agency said Utica’s pensions are well-funded and its debt amortizes rapidly.
The budget includes a reduction in general fund staffing by 38 personnel through a mix of layoffs and retirements, net savings for which are estimated at $2.4 million in the current fiscal year. Additionally, the Common Council overrode the tax levy cap by a 7-2 vote, increasing the city’s property tax levy by 9.9 percent, considerably higher than its recent trend of 2.6 to 6 percent increases over the last four years. This levy increase is anticipated to generate approximately $2.2 million in additional revenue.
However, Fitch says that the city’s financial operations going forward will remain challenged as the city struggles to achieve budgetary balance. Utica expects to borrow about $11 million for its cash flow in the current fiscal year.
Fitch’s discussion of Utica’s finances notes that the regional economy receives a boost from the Oneida Indian Nation’s Turning Stone Casino and Resort in the Town of Verona and Griffiss Business and Technology Park.
Moody’s also highlighted Utica’s strengths — a growing tax base and manageable, "albeit above average debt burden." The rate, it stated, could go back up if there is significant tax base growth or multiple years of material fund balance growth.
Standard & Poor, the third major municipal credit rating, has yet to issue its opinion of the city’s financial condition.
Credit ratings are used by lenders in determining interest rates on bonds. In general, the better the rating, the lower the interest rate.
The City of Rome is rated by Standard & Poor’s, which most recently gave the city an A+ rating. The last time Moody’s rated the city, it graded Rome as a A-1, comparable to the current S&P rating, according to Treasurer David C. Nolan.