Active Management Of Forecasted Budget Gaps
NEW YORK Feb. 8, 2008--Standard & Poor's Ratings Services assigned its 'AA' rating, with a stable outlook, to New York City's $550 million fiscal 2008 series I GO bonds.
At the same time, Standard & Poor's affirmed its 'AA' rating and underlying rating (SPUR), with a stable outlook, on the city's GO parity debt.
Rating factors supporting New York City's 'AA' long-term debt rating include the city's substantial and diverse economic base, comprehensive financial planning process that has helped it effectively balance a recent forecasted revenue decline and ongoing spending pressures, and surplus revenues over the past several years that have enabled it to continue prepaying expenses for subsequent budget years, reduce debt levels, and begin to address long-term liabilities, such as retiree health care benefits.
Offsetting credit considerations include an above-average reliance on the financial services sector for resident income and tax revenue, coupled with a high debt burden by most measures, with significant capital funding requirements that the city has managed well over time.
"Like all other governments, New York City continues to face risks to its financial plan. However, its long-term planning and proactive budget management mitigate these risks at the current rating level," said Standard & Poor's credit analyst Robin Prunty. "The city has used surpluses from previous years to manage future budget pressures and to begin addressing long-term liabilities, such as retiree health care costs. This has provided the city flexibility to manage its budget in an environment of slower revenue growth."
New York City adopted its fiscal 2008 budget on June 15, 2007. On Jan. 24, 2008, the city released its preliminary fiscal 2009 budget and second financial plan modification. Total revenues for fiscal 2008 will be $449 million higher than originally forecasted, due largely to increased tax audit revenue; the city revised tax revenues downward by $261 million. Additional reductions in the out-year revenue forecast have contributed to higher gap estimates. Weakness in the financial services sector is forecasted to affect income tax collections, real estate transactions, and overall consumer spending. Fiscal 2008 should remain well balanced, even if there are additional downward revenue adjustments. The city has requested spending reduction programs from city agencies equal to 2.5% for fiscal 2008 and 5.0% for fiscal 2009. The savings for fiscal 2008 are on target, according to the city. The preliminary fiscal 2009 budget is balanced, with previous year surpluses and spending reduction measures. The projected gaps are higher for fiscals 2010-2012: $4.2 billion, $5.6 billion, and $5.3 billion, respectively.
The rating action affects roughly $35 billion of outstanding GO debt.
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