Citing its large amount of uncollected taxes and high debt, Moody’s Investors Services has downgraded Schenectady’s credit rating.
The rating was lowered two notches from A1 to A3.
Moody’s said the downgrade “reflects the city’s declining financial position, which is expected to deteriorate further in fiscal 2012 as a result of delinquent real estate taxes coupled with rising employee benefit expenditures.”
A higher bond rating results in lower interest rates for municipalities. The A3 rating is the lowest on the A tier and still considered investment grade.
The report also said the city’s tax base had been relatively stable until a moderate decline in 2011 and 2012, and that there is the potential for further declines in the future. The city has an above-average debt burden with $34.6 million outstanding to date and the income of its residents is below average. Moody’s issued a negative outlook for Schenectady in light of the city’s continuing financial pressures.
Mayor Gary McCarthy said the downgrade reinforces what he’s been saying during the past year about the large amount of delinquent taxes. At the beginning of the year, the city was owed $18 million in taxes. Since then, it has collected a little more than $6 million.
“If everybody paid their taxes, we wouldn’t have an issue. If we had $12 million in cash, we’d be a lot better off and Moody’s wouldn’t have downgraded us,” he said.
Schenectady used to receive a large sum of tax liens from tax collection agency ATF. The city ended its contract with ATF, as it was getting less money each year, and took over collecting delinquent taxes itself. The money is trickling in, according to McCarthy.
The city foreclosed on 159 properties a couple of weeks ago and will proceed with more foreclosures in about four or five weeks, McCarthy said.
“As we do the foreclosures, people are paying up at the last minute,” he said.
McCarthy is also trying to reduce expenses as the city is facing a potential $5 million hole in the 2013 budget. He had proposed seven layoffs but the City Council rejected those. The mayor will be working over the weekend on his 2013 budget proposal, due Monday.
McCarthy said interest rates are at historic lows and noted that A3 is still an investment-grade rating, so expects minimal impact to the city’s finances.
Councilman Vince Riggi said he believes the city will have to pay more with a higher interest rate. He wasn’t surprised by the downgrade given how much debt the city is carrying.
“Over the years, because it was so cheap to borrow, we’ve been borrowing. We’ve been borrowing and borrowing. It comes time to pay the bill,” he said.
Riggi said the city’s current debt burden doesn’t even include the $20 million in a bond anticipation note that is tied up with the cost of building the Bureau of Services complex on Foster Avenue.
The city has been paying only interest on the bond anticipation note and will have to roll that over to an actual bond. Its interest payments will jump from 1 percent to 4.5 percent at the end of next year.
Riggi added that a couple of weeks ago, the city was urged to approve the long-term sales tax agreement with the county because it would show that the city has a viable source of revenue coming in, and that would improve its financial standing.
“Apparently, Moody’s didn’t buy that,” he said.