Amidst the 2012 budgeting process, a dark cloud formed over Niskayuna on Thursday, Oct. 20.
Moody’s Investors Service announced it has downgraded the Town of Niskayuna’s bond rating to Aa3 from Aa2, which is still within the “high grade” bracket. The reason given for the downgrade was a decline in operating fund reserves over the past three fiscal years with an additional decline in fiscal year 2011. Also, mortgage tax receipts coming in under budget and recent storm damage were a factor for the downgrade.
Moody’s also gave a negative outlook on the town’s finances, because it believes “the town will be challenged to replenish reserves back to historical amounts,” said a Moody’s statement.
Supervisor Joe Landry admitted there are issues with fund reserves, but said there are “a lot of good explanations” for its woes, such as recovering from an ice storm a few years ago. He noted while the downgrade isn’t a good thing, the town still maintains a “Aa” rating.
“We feel that we are in good fiscal condition, but they don’t look at all the other funds we have in the town they are just looking at the general fund,” Landry said. “A tax cap law is not going to allow any municipality to restore fund balances to previous levels.”
Councilman Jonathan McKinney said the town must refocus how funds are being spent in the town. McKinney has previously voiced concerns about the lack of investment in infrastructure. Also, he has said recreation programs are draining funds.
“This is a wake up call,” McKinney said. “We need to change what we are doing. We are focusing too much on recreation programs and losing money every year.”
McKinney said the downgrade on top of the Department of Environmental Conservation’s statement that the town has problems with its sewer related to inflow and infiltration only adds to the dilemma.
The fund balance in 2007 was $1.5 million, spokesman for Moody’s David Jacobson said. Three years later, in fiscal year 2010, the town’s reserves dropped to $936,000. Jacobson said for 2011 it’s expected $287,000 will be squeezed out from reserves.
As far as 2012, the town’s budget is slated to not tap any of its reserves, but Landry previously said fees would be increased for town recreation programs and home alarm systems tied to the police department.
“It is better to not dip into reserves every year,” Landry said. “If you are not taking from them every year you are going to replenish them.”
The state tax cap imposed upon municipalities will also make it harder to replenish fund balances “as fast as wanted” without overriding the law, Landry said.
“We are in a new financial situation here as a municipality. Prior to this year we did not have a tax cap. Going forward and every year thereafter we have a tax cap,” said Landry.
A lower bond rating may affect the town’s ability to borrow money, Jacobson said, because higher interest rates could be imposed. When a bond rating drops the value of the bonds go down. The town currently has $10.4 million in outstanding debt, Jacobson said.
Landry said Moody’s outlook on the state is negative too. Overall, he said the downgrade was a reflection of the looming fiscal reality.
“If you look at what Moody’s is saying we still have a strong rating. I just feel that is an adjustment in the market,” Landry said. “I believe you are going to see other municipalities that are going to realize the same type of downgrades.”
