Moody's Downgrades A Village In New York As America Retains Its AAA Rating

Tyler Durden's picture

Ever wonder how Moody's keeps itself busy in all the free time it has when it is not focusing on how to break the news that the US is really a B-rated credit? Here it is: the rating agency is now focusing on the ratings of villages (in this case the Village of Johnson City) with $8.1 million in debt and 14k citizens. And, not too surprisingly, a village somewhere in the bowels of upstate New York was just downgraded from A1 to A3. As to when Moody's will get back to providing a fair and honest rating on he insolvent developed world, they will get back to you.

From Moody's

NEW YORK, Sep 8, 2010 -- Moody's Investors Service has downgraded the Village of Johnson City's (NY)
rating to A3 from A1 and assigned a negative outlook affecting $8.1 million in
outstanding rated general obligation debt, secured by the village's general
obligation, unlimited tax pledge.

RATINGS RATIONALE

The downgrade reflects the village's materially changed financial
position, characterized by a narrow General Fund balance, which declined
to $234,000 or a slim 1.6% of General Fund revenues in fiscal 2009 (ended May
31) from $929,000 or 5.9% of General Fund revenues in fiscal 2008. Assignment of
the negative outlook reflects the potential for further downward rating pressure
given ongoing expenditure pressures, the uncertainty of pending tax appeals, and
the village's limited ability to absorb these events or other
contingencies given its already narrow financial position.

Moody's believes the village's financial position and liquidity will
remain pressured, as fiscal 2009 ended with a $1.07 million operating deficit as
a result of reclassification of $831,000 of bond anticipation note (BAN)
proceeds that had been improperly budgeted as General Fund revenues in prior
years. Consequently, village officials state that the New York State Comptroller
adjusted the village's total fund balance to negative $182,000 or negative
1.3% of General Fund revenues. In fiscal 2009, approximately two thirds of the
village's Operating Fund revenues were derived from ad valorem taxes (60.2%),
followed by local option sales taxes (24.2%), an economically sensitive revenue
stream which performed weakly in fiscal 2009 across the state and nation. A
shortfall of $237,000 in sales tax collections in fiscal 2010 were offset by a
variety of expenditure reductions, which replenished a budgeted fund balance
appropriation of $86,400 of General Fund balance and contributed to a surplus of
$660,000. However, the surplus was largely driven by the elimination of
six firefighter positions in July 2009 which reportedly broke the
collective bargaining contract. The village is currently in arbitration and may
face a liability of up to $1.25 million, a significant amount that could be
absorbed with proceeds of a bond issuance. Village officials stated the fiscal
year ended with a total General Fund balance of $350,000 after a retro payment
of $200,000 to state police department officers as they have not been under
contract since May 2006. This additionally has an estimated total liability of
$750,000 as village officials are unsure of what arbitration will determine.

In fiscal 2011, the village reduced its appropriation of fund balance to $13,000
along with receiving a one-time revenue of $130,000 from recourse of the
village's Police Evidence Storage, which is a restricted revenue source that can
only be used for drug related police expenditures. Management does not have a
formal General Fund balance policy and reports that fiscal 2011 operations are
performing better than budget with the expectation of an addition to General
Fund balance at year-end, given general trends.

The A3 rating additionally reflects the expectation that the
village's moderately sized $714 million tax base will decline over the near term
due to a successful tax appeal from Macy's, a tenant of top ten taxpayer Oakdale
Mall Association (8.9% of total assessed valuation). The tax appeal results in a
$270,000 (0.9% of total AV) reduction in Macy's AV which will affect fiscal year
2012 tax rolls along with a one-time payment of $63,000 during the current
fiscal year. The village will partially offset this reduction with property
taxes from a recently opened Wal-Mart, which has a seven year fixed assessment
of $124,000 (0.4% of total AV) along with creating approximately 300 new jobs.
The net impact of the tax appeal and Wal-Mart will be approximately $39,000 of
lost property tax revenue. Located in Broome County (rated A1/no outlook), the
village is characterized by wealth and income indices below that of the median
for similarly rated New York municipalities.

The rating also reflects the village's slow amortization of principle (39.2%
repaid within 10 years) and high gross direct debt burden (6.5%) which is
reduced after incorporating the village's self-supporting sewer debt (2.0% net
direct; 4.3% overall). The village's adjusted debt burden is expected remain
above-average as the village plans to issue in the near future $7.6 million of
sewer bonds along with issuing $350,000 of BAN's this fall for sewer related
equipment (sewer fund is expected to remain self-supporting). All of the
village's debt is fixed rate and the village is not party to any derivative
agreements.

OUTLOOK

Assignment of the negative outlook reflects the villages limited
financial position and ongoing challenges to balance operations and replenish
reserves.

 

KEY STATISTICS

2008 Population: 14,727 (-5.2% decrease since 2000)

2010 Full Valuation: $714 million

2010 Full Value Per Capita: $48,512

1999 Per Capita Income (as % of NY and US): $17,511 (74.9% and 81.1%)

1999 Median Family Income (as % of NY and US): $39,241 (75.9% and 78.4%)

Adjusted Net Direct Debt Burden: 2.0%

Overall Debt Burden: 4.3%

Payout of Principal (10 years): 39.2%

2009 General Fund Balance: $234,000 (1.6% of General Fund revenues)

2009 Adjusted General Fund Balance: -182,000 (-1.3% of General Fund revenues)

Long-term G.O. Debt Outstanding: $25.6 million

The principal methodology used in rating Johnson City (Village of) NY was
General Obligation Bonds Issued by U.S. Local Governments rating methodology
published in October 2009. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found on Moody's
website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties
involved in the ratings, public information.

Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S is not an auditor and
cannot in every instance independently verify or validate information
received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back
to a time before Moody's Investors Service's Credit Ratings were fully
digitized and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it. Please
see the ratings disclosure page on our website www.moodys.com for
further information.

Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning of each
rating category and the definition of default and recovery.