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S&P rates Niagara Falls' outlook negative after Senecas cut off casino fund

The financial outlook has turned negative for Niagara Falls since the Seneca Nation cut off casino payments, according to one of the major Wall Street credit rating firms.

Casino money represented 15 percent of the city's revenues last year, and a report from Standard & Poor's on Tuesday said Niagara Falls seems to have no long-term plans to respond to the loss of that money.

"It's our position and that of the state that money is owed and will eventually be paid," Mayor Paul A. Dyster said.

He also said he has received word that another Wall Street firm whose report has yet to be released will keep its Niagara Falls outlook stable instead of shifting to the negative as S&P did.

The report by S&P analyst Rahul Jain anticipates the city will have to dip into a restricted-use reserve fund that holds $22 million in past casino payments in order to balance next year's budget. Jain warned, and Dyster agreed, that reserve money could be gone in two years if the Senecas make  no more payments.

But that assumes the city will make no financial changes in response to the casino situation. Dyster said the city is trying to reduce its use of casino money and reduce its expenses, too.

"We all realize there's uncertainty after 2023, when the (casino) compact expires," Dyster said.

Niagara Falls ran a $1.4 million deficit last year despite receiving $12 million from the Senecas. This year's budget projected almost $11 million in casino revenue, but that was adopted before the cutoff.

The report kept the city's bond rating at BBB+, which Jain said is a "low investment grade" rating, three notches above a speculative rating.

Jain said there is a 1-in-3 chance of a downgrade of the bond rating within two years if the state and the Senecas don't make a deal to keep the casino money flowing to the Falls. That would drive up the city's interest expenses for borrowing.

"I think we've shown that we're good cash managers," Dyster said. "We shouldn't have to worry about our bond rating being downgraded because the Seneca Nation of Indians has decided they don't want to pay what they're supposed to pay."

"There are limited reserves that the city has, which is slightly different from the last time this happened," Jain said in an interview.

Jain's report cited a small and shrinking fund balance and "limited capacity to raise revenues due to consistent and ongoing political resistance."

The state Financial Restructuring Board for Local Governments earlier this year urged Niagara Falls to carry out a citywide property revaluation. The S&P report said such a program is under consideration for next year, and Dyster confirmed that. If the city takes the state board's advice, it could receive a one-time grant of up to $5 million.

The S&P report says the city is at 79 percent of its constitutional taxing limit and already has the fourth-highest full-value city tax rate in the state. There hasn't been a revaluation in the Falls in 14 years.

But the main short-term problem is the Senecas' insistence that the revenue-sharing clause in the casino compact with the state has expired and the Nation no longer has to pay any of its profits to Albany, which passes on 25 percent to Niagara Falls and local agencies.

"The city has a tendency to adopt budgets with optimistic assumptions, particularly casino revenues," Jain wrote. "The city does not have a comprehensive plan approved by legislators that would allow it to manage structural gaps resulting from the loss of recurring revenues."

Without such a plan, Jain said, reserves and one-time revenues such as the potential Financial Restructuring Board grant would have to be used to balance the city budget.

The S&P report was issued in response to the city's plan to sell $8 million worth of bonds on Wall Street to pay for equipment purchases and the renovation of the Hyde Park Ice Pavilion.

 

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