Finance officials in Buffalo, N.Y., are claiming victory after credit raters affirmed the city's bond ratings and removed a negative outlook in advance of a $34.3 million negotiated bond sale scheduled for this week.
Standard & Poor's Corp. revised its outlook on Buffalo to stable from negative, assigning a BBB rating to both a $9.66 million and a $10 million general obligation bond series. The rating agency also assigned an A-minus to a $14.64 million bond series for the city's public schools.
Moody's Investors Service confirmed its Baa rating of Buffalo for all three bond series.
A "key point" in Standard & Poor's revision of Buffalo's negative outlook was the recent ratification of the labor contract between the Buffalo Teachers' Federation and the Buffalo board of education, said Richard Marino, director of the Eastern region for Standard & Poor's.
Brad Gewehr, a Moody's vice president and supervisor of the Northeast regional ratings group, said the board has pledged to make its "best effort" to find $90 million to fund salary raises, calming fears that the contract dispute would result in a prolonged financial crisis.
Joel Giambra, the city's comptroller, could not be reached for comment, but Buffalo's financial adviser said the city views the rating actions as confirmation that its finances are starting to show some discipline.
"This improvement in outlook represents a change in the negative credit trend that had affected the city for the last several years," said J. Chester Johnson, chairman of Government Finance Associates Inc. "The changed outlook reflects the improved financial operations Buffalo experienced in fiscal 1994 and this year."
During the recession of the early 1990s, Buffalo plugged general fund deficits by using one-shot revenue raisers. In fiscal 1993, for example, the city eliminated a $20 million deficit through the sale of the city's water system.
Standard & Poor's assigned its negative outlook on Buffalo bonds in 1992, after downgrading the city to BBB from BBB-plus. Also in 1992, Moody's lowered its rating to Baa from Baal.
Despite the improvements, rating agencies are concerned about a general fund gap of about $5 million that has emerged in the $318 million fiscal 1995 general fund budget. Buffalo's fiscal year starts July 1.
"Buffalo plans to close the gap through a hiring freeze and tighter overtime spending controls and -- if necessary -- layoffs," Standard & Poor's said in a press release. "The city projects a potential fiscal 1996 gap of $17.7 million but is committed to closing the gap through continued tight expenditure controls."
"The triple-B rating reflects a broad-based economic recovery following the end of the recession in the Buffalo area during third quarter 1993, low income levels, a moderate debt burden, and a stabilizing financial position," Standard & Poor's said.
Moody's cited a number of factors for its confirmation of the city's rating, including a stabilized general fund position over the past two years, a diversified economy, and moderate debt levels.
But the rating agency warned that the city still suffers from a structural budget gap.
"Although progress has been made toward improving financial operations, the city continues to face an ongoing structural gap in its budget," Moody's said in a rating recap. "For fiscal 1995, officials currently project a budget shortfall of $5.4 million, stemming in part from an ongoing problem with overtime expenditures in several departments."
