A bond rating agency has downgraded New Haven’s rating, citing the city’s depleted cash reserves, high debt and long-term employee benefit costs.
City spokeswoman Anna Mariotti released that information after 5 p.m. Friday.
Fitch, the rating agency, downgraded the city from “A+” to “A.” That rating applies to about $510 million in outstanding general obligation bonds issued by the city. Read the report here.
Lower bond ratings can increase the cost of borrowing by New Haven and make investors wary of trusting their money with the city.
New Haven is rated by two other agencies, Moody’s and Standard and Poor’s, at A1 and A-, respectively. Moody’s lowered its “outlook” on the city in 2011.
“Among reasons cited for the downgrade, Fitch listed the City’s limited financial flexibility due to low reserve levels; the fact that State aid budget cuts could dramatically impact the City’s revenue; above average City debt ratios and high future retiree costs,” Mariotti wrote in the release.
The “key rating drivers” listed by Fitch include the city’s projected deficit for the current fiscal year, uncertainty about the state budget, high—but stable—debt ratios, and high predicted retiree costs.
“We need to put this into perspective given the current state of the economy—both the State and Federal government recently received downgrades.” said city Budget Director Joe Clerkin. “The move by Fitch was not terribly surprising and is a fair read of fund balance deterioration. That said, the City needs to ensure that we move forward with labor agreements that the taxpayers can afford, that are fair to employees and that are mindful of current market conditions.”
posted by: cp06 on April 19, 2013 5:21pm
Thank you for relieving me from the incessant awful news in Boston.
Not good news! Still I have to take issue with the headline. Is being downgraded from “A plus” to “A” really being “socked” as the headline suggests? I expect a little more than a sensational headline from the NHI. When did Fitch put this info out?????
posted by: Noteworthy on April 19, 2013 6:57pm
A couple of notes:
1. Mayor DeStefano should have delivered this news, especially in light of his spending plan, with higher costs, no savings, and added debt. The budget as it relates to debt service is inoperative.
2. That the city has not been downgraded in the past has been a gift.
3. Joe Clerkin’s positioning of this downgrade as no big deal is the same level of unconcern that permeates City Hall. There should be some urgency.
4. The city budget under discussion at the BOA should actually include cuts that re-build the fund balance. This budget doesn’t do that. Why not?
posted by: swatty on April 19, 2013 7:07pm
Did you all hear that labor unions of New Haven?
Be part of the solution - not the problem for we the taxpayers!
posted by: robn on April 20, 2013 8:02am
It’s being socked. A downgrade means higher future borrowing costs and potentially higher debt service on some debt that might be structured with a variable interest rate (although I think Rob Smuts once publicly declared that the city has avoided such exotic instruments).
posted by: factsifter on April 22, 2013 12:31pm
Notey, how on earth do you get to the point that the budget director is making “no big deal” about this, the same level of unconcerned that permeates throughout all City employees. His comments seem very straight forward and to the point. Especially now, I would think the unions would have loved to see a stable rating, so I think they were concerned! Who is unconcerned? Want me tell you. Everybody is concerned. This hurts every departments pocketbook as it will now cost more to borrow money, meaning less money will be available for departments to spend improving this City. How can you say that past ratings were gifts? These rating agencies gave the City of New Haven a gift when at the same time they were down grading the U S Government, C’mon! You serious? What cuts are you speaking of? How about 10% across the board? That is always a great comment, makes sense. Cut the debt service budget by 10% too, the rating agencies will understand, won’t they?
posted by: Noteworthy on April 23, 2013 11:58am
I get that there is no urgency by looking at the submitted budget which increases spending, increases debt and debt service and adds employees. Since the budget director and DeStefano both knew this was coming, that a fair analysis of our fund balances are a problem when we are currently running another deficit, I would have expected the budget and the comments post ratings decline to reflect how important it is.
Was past ratings a gift? Yes. The outlook was downgraded in 2011 but the rating was not. We were in a little better shape then than now because we still had some money in the bank. But a poor outlook is a red flag and yet, the ratings remained stable at the reduced ratings from several years earlier.
Budget solutions? Hiring freeze for starters; cap the cop budget overtime, not increase it. The same with firefighters. No increase in employee head count, and yes, make some cuts. Real cuts that reduce spending below this year’s level. Across the board is easy, but kind of a blunt axe. It’s better to do strategic cuts that make sense: End the licensed multi-family inspections - this loses $400K a year and has never paid for itself; end Tweed subsidy - they can raise the same money and more by charging user fees and increasing the cost of parking; end free lunches for school children - those of us that can pay should; end the street outreach worker program - we are overrun by gangs and violence; end free after school programs - do we really need to provide free day care after school?; end new school construction; get serious about risk mitigation/assessment - we lose millions of dollars a year in legal cases; do an analysis of all the private PILOTS the city has entered into over the last 20 years - is it worth it? Are they paying? The YMCA is a great example. Consolidate department and get rid of management that oversees a small department or like LCI, where you have a director and deputy director who oversees. These are just a partial list.
posted by: factsifter on April 24, 2013 9:20pm
Noteworthy, Thank You for the additional explanation