City’s Bond Rating Is Raised, Giving a Boost to Mayor
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Standard & Poor’s upgraded the city’s bond rating yesterday to what the rating agency and the mayor say is the best ranking it’s ever had, giving a vote of confidence to the finances of a once-nearly-bankrupt city with a mark that will save taxpayers money by allowing the city to borrow money at lower interest rates.
The new rating – AA minus – cements the city’s strong economic and financial standing and could also turn up the pressure on Mayor Bloomberg to cut taxes or increase spending.
The mayor called the new rating a “testament to our administration’s fiscal prudence” and said it would save taxpayers “tens of millions of dollars” in interest payments in the coming years.
Earlier in the day, he told the Citizens Budget Commission that the city’s previous credit rating – which at an A plus was the best on record until now – “gives me a smile on my face every once in awhile.”
The news, which was largely fueled by the booming real estate market – is not likely to change Mr. Bloomberg’s approach to the budget.
He has said repeatedly that he has no plans to increase spending or cut taxes, and cautioned that the economy is slowing with houses staying on the market longer. Yesterday he also said he was concerned about the commodities and stock prices, which have tanked in the last two weeks.
Mr. Bloomberg also said that while the city has weathered several fiscal storms, now is the time to “take the long view and make the decisions that will put the operations of city government on firmer long-term footing.”
“We’ve made it clear that we’re not going to squander our current good fortune by caving in to short-sighted demands for spending increases or tax cuts,” he told those who attended the breakfast at the Grand Hyatt in Midtown. “We are not going to repeat the mistakes of the past.”
In its upgrade report, S&P, the credit rating giant, cited the prepayments the city has made on future expenses, higher-than-expected tax revenues, and the $2 billion Mr. Bloomberg is squirreling away to help pay for health care for city retirees in the future.
“I think it really speaks to the resiliency of the city’s economy,” the lead S&P analyst on the report, Robin Prunty, said. “They’ve had some very substantial surpluses that have allowed them to prepay some of their future budget requirements. We view all that as very positive.”
The three-page report says that the city’s debt burden is high at $6,221 a person, but that it’s offset by tax revenues from real estate transactions, income taxes, tourism, and other sources. The rating, the first time the city has be placed in the AA category, affects roughly $34.2 billion worth of bonds, according to S&P.
It praises the city for addressing long-term liability, which it says mitigates future risks.
A spokesman for the city’s Independent Budget Office, Doug Turetsky, said with debt service eating up a large portion of the city’s budget the savings could gives the mayor and the City Council more wiggle room.
“The lower your debt service costs, the less a drag it is on your other expenditures,” Mr. Turetsky said.
Mr. Turetsky said that the city paid roughly $4.6 billion in debt service this year, including a prepayment for next year’s debt. That number is expected to go up to $5 billion by 2010.
A fellow at the Manhattan Institute, Nicole Gelinas, a fiscal conservative, said that while the upgraded rating was a positive for the city’s creditors it would not mean much to taxpayers. “It certainly doesn’t mean that taxpayers are better off today than they were a week ago.”
Ms. Gelinas said the upgraded rating highlights the need for restructuring of the city’s income tax.
Mr. Bloomberg has said that budget gaps for the next three fiscal years and skyrocketing pension and health care costs that the city cannot control require fiscal restraint. Yesterday he called pension reform “one of the great battles to come.”
Any changes to the city’s pension system would require state approval and would almost certainly only affect new, not existing, employees.
While experts believe the odds are against Mr. Bloomberg when it comes to convincing Albany to take the issue up, Mayor Koch said the conversation “had to start somewhere.”
“When I was mayor the then-state legislature was in the pocket of the unions,” he said. “I don’t know how it is now. I hope it’s changed or that it’s changing.”
The chairman of the City Council’s finance committee, David Weprin, said the city would theoretically have more money that it would be responsible in deciding what to do with it.
“It just means that the city will save some money,” he said. “I wouldn’t spend it now, otherwise we might end up getting downgraded.”
The city’s bond rating is up from BBB plus in July 1995. It was last upgraded in May 2005.