Narrow reserves drove Yonkers, New York, closer to a bond rating downgrade despite recent momentum attracting new residents through transit-oriented development.
Moody’s Investors Service revised its credit outlook for Yonkers’ A2-rated debt to negative from stable Tuesday citing weak fund balance and liquidity levels. Yonkers, which is in Westchester County on the New York City border, is also facing struggles funding its school district as state aid declines.
“The city’s financial position will likely remain narrow for the foreseeable future given structurally imbalanced budgets and limited revenue raising ability,” Moody’s analyst Robert Weber wrote Wednesday. “While management believes that it will break even in fiscal 2019 and that the fiscal 2020 budget is conservative, failure to bring operations into balance and return to growing reserves and liquidity will put significant pressure on the city’s credit profile.”
Weber noted that the Yonkers’ operating fund declined to $82 million, or 7.4% of revenues, in the 2018 fiscal year from $119 million, or 11% of revenues from 2016. The operating fund combines the city’s general fund, city school district fund, city and school district debt service funds and school district special aid fund.
City officials expect the sale of a municipal property to net $13 million for the general fund and are conservatively projecting reserves will stabilize at the end of 2019, according to Moody’s. Yonkers is still forced to significantly fund its school district operations, however, and used 94% of its constitutional property tax limit as of fiscal 2018. The city has only roughly $21 million in available property taxing margin for the public schools, putting a major “constraint” on operations, Weber said.
“The school district continues to struggle as management notes that state aid is below what is needed to effectively operate the city’s schools,” Weber said.
Yonkers is facing an elevated near-term debt profile because of major capital needs during the next five years, according to Moody’s. In addition to issuing bonds for city needs, Yonkers also borrows for the school district and backs that debt with the city’s general obligation pledge. The city has roughly $96 million of bond anticipation notes outstanding that it expects to permanently finance with long-term bonds at maturity in December.
Pension and other post-employment benefit liabilities also present “a potential future credit challenge,” Weber said. The city has been deferring portions of its annual contributions to the police and fire pensions and expects to continue this practice for at least two years. Yonkers participates in three multiple employer cost-sharing pension plans and funds OPEB on a pay-go basis.
Despite the new assigned negative outlook, Weber noted positives in Yonkers favor such as a large tax base experiencing resurgence with significant number of new apartment/condo complexes being constructed around the city’s mass transit centers. The high-density complexes are projected to add around 5,000 new residents which will help drive increased income and sales tax revenues, according to Weber.
Yonkers has seen its population rise to 200,807 in 2018 from 198,654 in 2014, according to U.S. Census Bureau estimates.
