Is the S&P credit downgrade of Niagara Falls the beginning of the end?
By Darryl McPherson
It was announced on Tuesday that the financial outlook for the City of Niagara Falls was changed from “stable” to “negative” by Standard & Poor’s (S&P), one of the Wall Street credit rating agencies. Sometimes a government has to sell bonds on the market in order to have enough cash on hand, either for a specific purpose like building a police station or buying a large piece of equipment, or to cover its immediate cash needs. Those bond offerings are then judged by the rating agencies based on the government’s ability to pay the money back with interest.
A good credit rating tells someone interested in buying bonds that your bonds are strong and are a good investment. Those bonds are easy to sell as they can attract buyers. A lower credit rating indicates that there may be problems getting paid back, and as such, are a riskier investment. In order to entice buyers, the interest paid on the bonds must be higher.
S&P decided Niagara Falls was no longer “stable” because its ability to pay was jeopardized by the loss of casino revenues after the Seneca Nation of Indians opted to cease making payments to New York State (and by extension, to Niagara Falls) in March, 2017. The Seneca Nation maintains that this is consistent and legal based on their reading of the agreements they reached with New York State.
While there is no immediate effect on the average citizen of Niagara Falls, it can lead to higher taxes or the loss of services, as the City has to adjust to its limited spending power. As observed by S&P, reserve funds will be needed to balance next year’s budget, and the City’s tax rate is already the fourth highest in New York state. The City is in need of a financial plan to manage its budget gaps brought about by the loss of the casino revenue.
The time for action is now. The Seneca Nation has taken a bold and structurally damaging step by stopping those payments to the State. Niagara Falls and the other host communities that have casinos (Buffalo and Salamanca) will certainly feel the impact of that action. The response from Albany has been slow and indecisive. Niagara Falls literally cannot afford to wait for something to happen.
It is incumbent on local leadership to grab the reigns and find the means to get the casino funds flowing again.
The Seneca Nation has made statements that suggest they are willing to make agreements with the host communities. It would be in everyone’s best interest to explore those opportunities at the first available moment, if not sooner.
A highly credible observer, like S&P, has plainly put the City’s fiscal future on paper. The writing, as they say, is on the wall. It is time to do something about it.
