Moody's on Troy's fiscal future: 'negative outlook'

This is distressing news.

Moody's Investors Service on Friday affirmed the City of Troy's anemic "A2" bond issuer rating and assigned a negative outlook.

Given the fact that the State of New York once again has expressed grave concern over our city's financial situation and outlook, this is another negative hit that speaks to the weakness of fiscal management in recent administrations, up to and including the present one.

For those of you not up to speed on what the Moody's report means, an investor's rating determines the grade municipalities' bonds carry. There are more than 80,000 issuers of municipal bonds in the nation, which means competition for attracting buyers is fierce. The better your rating, the better your chances of attracting bond buyers -- i.e., investors; and, the better your chances of raising the money necessary to finance major efforts at a rate of repayment that won't break the bank.

Moody's, Standard & Poor's (S&P) and Fitch are the three major rating agencies that evaluate thousands of issuers and their municipal bonds. The scale Moody's uses to rate bonds is:

• Aaa: The highest rating assigned to issuers and individual bond issues. This is the strongest category of creditworthiness.
• Aa: Implies very strong creditworthiness.
• A: Implies above average creditworthiness.
• Baa: The lowest tier of what is generally considered ‘investment grade’" bonds. This implies average creditworthiness.
• Ba: Implies below-average creditworthiness.
• B: Implies weak creditworthiness.
• Caa: Implies very weak creditworthiness.
• Ca: Implies extremely weak creditworthiness.
• C: The weakest implication of creditworthiness.

Bonds in the Aa, A, and Baa also are assigned "1," "2" or "3" designations, based on the strength of the issue within each category. So, "A1" would be the strongest group of "A" securities and "A3" would be the weakest of them.  Troy's "A2" rating means it is, at best, a fourth tier investment opportunity -- middle of the pack among a so-so letter-rating group.

Here are the salient points from the Moody's announcement, complete with the analysts' tips on how to improve the rating. You can read the complete press release the online.

---

RATING RATIONALE

"The A2 issuer rating reflects the city's moderately-sized tax base with below-average wealth levels, narrow General Fund balance net of the Municipal Assistance Corporation (Troy MAC, Aa2) debt service reserve fund, trend of operating deficits, and manageable debt burden.

"The negative outlook reflects the city's narrow available fund balance, limited financial flexibility, and declining financial position, which may decline further in 2015 due to a $725,000 fund balance appropriation"

STRENGTHS

• Moderately-sized tax base

• State oversight provided by Troy Supervisory Board and MAC

CHALLENGES

• Below average wealth levels

• Declining General Fund balance

• Narrow available fund balance

WHAT COULD MAKE THE RATING GO UP (removal of negative outlook):

• Significant and sustained improvement in cash reserves and General Fund balance

• A trend of structurally balanced budgets

WHAT COULD MAKE THE RATING GO DOWN:

• Continued declines in available General Fund balance

• A trend of structurally imbalanced budgets

---

So, once again we are faced with unsettling news about where our city, through its government, is headed.

It is particularly disappointing because so many positive things are taking place in Troy in terms of new businesses, new development projects, new residents and a new attitude -- an upbeat vibe in spite of, rather than thanks to, our municipal government.

That lack of balance will not sustain the uptick of the city's quality of life.

---