Schenectady’s bond rating was upgraded by Standard & Poor’s last week, reflecting the city’s stable financial outlook and improving local economy.
The service raised its underlying rating on the city’s general obligation bonds one notch, from ‘A-minus’ to ‘A.’ The change is indicative of the city’s “weak but improving local economy and its strong reserve and liquidity position,” the service stated after raising the rating Thursday.
S&P did warn, however, the city still faces pitfalls that pose a risk to its financial health. Among them are unsettled union contracts, as well as a “substantial fixed cost burden” with pension, healthcare and other post-employment benefits.
“Should Schenectady maintain strong reserves and adequate-to-strong budgetary performance while addressing fixed costs and contingent liabilities, we could raise the rating,” the service indicated. “Conversely, a slowdown in the city’s economic growth — especially given its already-weak income and wealth indicators — or contract settlements that threaten the city’s liquidity position or structural balance could lead to our lowering the rating.”
Still, the rating increase is indicative of the city’s ongoing efforts to improve both the local economy and its budgeting. Mayor Gary McCarthy said the city was able to achieve the increase even as it shifted away from selling tax liens.
“The plan is coming into place,” he said. “We’re slowly chipping away at it.”
McCarthy said the tax lien sales that initially benefited the city ultimately started costing it money, causing a “self-propagating decline.” In addition to revenue from the sales decreasing, the city also faced an increase in so-called distressed properties. These derelict properties don’t bring in tax revenue and ultimately cost the city because they require a high degree of public services.
“We were not getting the revenue, and the problems with those properties were going up,” he said.
Schenectady had maintained the A-minus rating for roughly two years. The upgrade reflects the city’s financial position in 2012, during which it had a $3 million surplus.
The city finished 2013 with about half as much in surplus. McCarthy said this dip shows there’s much more work to be done to keep the city’s bond rating moving in the right direction.
“There’s pressure there,” he acknowledged.
There’s also a steady stream of new economic development pouring into the city, said Ray Gillen, chairman of the Schenectady Metroplex Development Authority. He said continued job creation at General Electric Co. coupled with an influx of other businesses — such as Quirky Inc. bringing 180 new jobs to the downtown Schenectady — continue to paint a positive outlook for the city.
“There are big developments that create tax base and jobs in the city, and there’s some recognition of that in this rating,” he said.