S&P: Johnstown, NY GO Debt Rating Lowered To 'A+' On Weakening Finances; Outlook Negative
The rating action reflects S&P Global Ratings' opinion of the city's deteriorating budgetary performance and projected draws on reserves.
The negative outlook reflects the rating service's opinion of the city's lack of plans to prevent further declines in reserves and improve budgetary performance.
At the same time, S&P Global Ratings' assigned its 'SP-1+' short-term rating to the city's $7.2 million series 2016 GO bond anticipation notes (BANs).
"We believe there is a one-in-three chance we could lower the rating within the two-year outlook period. Due to the fiscal uncertainty of the city's finances, if reserves were to decline further to levels we consider on par with its lower rated peers, or if Johnstown cannot improve performance and balance its operations, we could lower the rating again," said S&P Global Ratings credit analyst Belle Wu. "Conversely, if Johnstown were to return to balanced operations and maintain strong reserves, in conjunction with materially improved economic metrics, we could revise the outlook to stable."
The short-term rating reflects S&P Global Ratings' view that Johnstown will likely maintain a very strong ability to pay principal and interest when the BANs come due. In the rating service's opinion, the city has a low market-risk profile because it maintains strong legal authority to issue long-term debt to take out the BANs and it is a frequent debt issuer that regularly provides ongoing disclosure to market participants.
The city's faith-and-credit pledge secures the bonds, including the statutory authorization to levy ad valorem taxes on all real property in the town, subject to provisions of the 2011 tax levy limitation law, which imposes additional procedural requirements on the ability of municipalities to increase the real property tax levy each year.
Johnstown is issuing the BANs to refinance existing BANs originally issued for a wastewater treatment capital project.