WPCNR CITY HALL CIRCUIT. By John F. Bailey. January 20, 2005, 2nd Edition, 10:20 P.M. E.S.T.: On Tuesday of this week, Moody’s Investors Service assigned a Aa-1 Rating with Negative Outlook to  White Plains latest $8, 177,000 bond issue that will pay for renovations to the children’s library, acquisition of property for open space (off the Greenway), water and sewer improvements and street reconstruction. Moody's also assigned a rating of MIG 1 to the city $1.9 Million Bond Anticipation Notes to finance police and fire and Department of Public Works rolling stock and the purchase of multi-space parking meters, due in two years.

MOODY'S GRADES THE CITY. Photo by WPCNR News

Moody’s continues the Aa1 rating and negative outlook it gave White Plains last year for a second straight year, in addition assigning the rating to White Plains’ entire $74.6 Million in long term parity debt, as well as the current issue.

The Moody’s report on the new issues came about when the city invited Moody’s Analyst Edith Behr to city hall last Friday to meet with Mayor Joseph Delfino, Budget Director Anne Reasoner  and an entourage of City Hall personalities to review the city’s economic development on the occasion of the issuing of the city’s new bonds this week.

Moody’s analyst Baer told WPCNR, this evening: “We were invited to White Plains to basically review the economic development in the city, and were given a very comprehensive presentation, mostly emphasizing the economic development, but also the financial condition (of the city) which we were particularly interested in. That’s what it focused on. In anticipation of the sale of bonds, we were reviewing the rating, and received the invitation to come to White Plains ourselves. There were notes being sold and we reviewed the long term rating at the same time.”

Baer said "Aa-1 is a very strong rating, in fact it is next to the strongest rating that we have. The negative outlook reflects three years of operating deficits which the city has plans to address, but we'd like to see the results from fiscal 05 before we adjust the rating."

Let's Go to that Report

Moody’s new report released  Tuesday, January 18 states “the Aa-1 rating reflects the city’s large and growing economic base, satisfactory financial flexibility, and a modest debt burden….The negative outlook reflects challenges the city faces restoring structural balance and maintaining a satisfactory financial position following three years of operating losses and expenditure pressures for fiscal 2005 and beyond.”

The Financial Perspective According to Moody’s

The Moody’s outlook takes into account city moves to bolster their finances:

“Moody’s expects the city’s financial operations, which reflect losses in each of the past three years, will be challenged to stabilize or improve in the medium term, given continuing expenditure pressures. Fiscal 2004 (ended June 30, 2004) reflected a General Fund operating deficit of $3.2 million, following operating deficits of $1.9 Million for fiscal 2002 and $4.1 million for fiscal 2003. However, the Parking Authority became a department of the city on June 30, 2004, and, as a result of transferring the authority’s fund balance to the city’s General Fund, the city experienced an increase of its General Fund balance to $23.2 Million (a satisfactory 25% of revenues), that will help to mitigate any volatility associated with sales tax revenues (30% of the city’s fiscal 2004 revenues).

Development and Assessibles

Moody’s makes this comment about the tax base:

The city's tax base, which is 55% residential and 45% commercial, is expected to benefit from substantial ongoing development in the medium term. This growth is reflected in the aggregate value of building permits issued in fiscal years 2002 and 2003, which were almost four times the aggregate value of building permits issued in fiscal year 2001. In addition, there is over $2 Billion of construction in progress as well as projects in various stages of approval. Despite annual average full value growth over the past five years of 12.3% reflecting market value appreciation and new construction, assessed values have declined an average of 0.7%, as a result of successful tax certiorari.”

However, Moody’s says PILOT agreements have “off-set” the impact of declining assessments. The Investors Service reports “together they (the PILOTS) are expected to increase an average of 1% over the next five years.” In fiscal 2005, Moody’s reports PILOTS will produce an additional $690,000 in fiscal 2005.

“Financial Operations Challenged by Ongoing Expenditure Pressures.”

The report acknowledges what it terms “expenditure pressures,” and presents the big picture:

Despite expenditure pressures including salaries, health insurance and pension costs, fiscal 2005 is expected to end with a slight surplus reflecting an increase in the property tax rate, fee increases, and stronger than budgeted sales tax revenues. Property tax rates were increased 12.75% ($4.4 Million) while PILOT’s (Payments in Lieu of Taxes) are expected to yield an additional $3.9 million. Sales taxes were budgeted to equal fiscal 2004 projected receipts and, for the first quarter (July-September) were 15.6% ahead of last year’s receipts. The city expects sales tax to exceed budget in fiscal 2005 by $3.3 Million. Moody’s negative outlook reflects the challenges that the city faces in restoring its financial operations to structural balance.”

“Minimal” Debt.

The report says Moody's expects the city debt position to “remain minimal, and characterizes the debt as “well-structured.” The city has 68% of its debt amortized  (principle paid) in ten years. 

 Moody’s observes the city may renew the bond anticipation notes in April 2005, fund a parking garage and finance “a portion” of the city pension liability.

Moody’s justifies its negative outlook on the city’s bonds in these words: “The negative outlook reflects three consecutive years of operating deficits and fiscal pressures faced by the city in the medium term.”

Factors to Watch – The Moody’s Challenge.

Moody’s reports that to remove the negative outlook, the city needs to restore: “Structural balance of General Fund operations for fiscal 2005.”

Conversely, Moody’s cautions that what could change the rating DOWN would be “a fourth consecutive year of operating deficits and erosion of the General Fund balance.”

Bond insiders tell WPCNR that it is unusual to continue a negative outlook rating into a third year, as Moody's has done this week.

Six months to go.

Asked if Moody's planned to review the city's condition on the quarter, Ms. Baer told WPCNR, "We review our ratings periodically, when we think it's necessary, and when we think the investor community is interested in hearing our thoughts. We will likely review the (White Plains) financial results from fiscal 05, and if there is a reason to report our finding to the market we'll do so at that time."