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Examination of NYC's financial reserves and their impact on bond ratings
3:46:31
·
3 min
Council Member Brannan and the Comptroller's office discuss the city's financial reserves, their projected levels, and the potential impact on bond ratings. They explore how increased reserves might lead to better ratings and lower debt service costs.
- Current reserves are declining from their peak in FY 2022
- Disagreement exists on what truly counts as reserves in the budget
- Better reserve policies could positively influence credit ratings, potentially leading to lower borrowing costs
Justin Brannan
3:46:31
I asked OMB the same question.
3:46:34
They didn't really have a great answer.
3:46:37
Standard and Poor's most recent rating of the city's general obligation bonds notes that the city has large financial reserves of almost 11,400,000,000 at the end of FY24.
3:46:48
S and P looks at both the city reserve accounts and the surplus budget roll at the end of the fiscal year.
3:46:53
While S and P notes that this level is large, reserves nonetheless have been declining since they peaked in FY twenty two.
3:47:00
They were at $12,700,000,000 at the end of FY '22, '12 point '3 billion at the end of FY 'twenty three and $11,400,000,000 at the end of FY 'twenty four.
3:47:11
I think OMB said they think it'd be around that same amount this year.
3:47:15
Do you agree with that or do you think I guess the question is what level of financial reserves does it look like we'll be reaching by the end of FY twenty five?
Jacques Jiha
3:47:25
There
Francesco Brindisi
3:47:27
is still a little bit of disagreement regarding what the tax revenues are gonna be for this year.
3:47:32
So the ball is still rolling.
3:47:34
But based on the executive budget, the city is putting in the budget stabilization account, which I understand that Standard and Poor's count as a reserve.
3:47:46
Dollars 1,500,000,000.0 more or less.
3:47:48
Less than it did in FY twenty four.
3:47:51
Right?
3:47:51
So by that account and without changing the other reserves, the the f y 25 reserves at the end of the year as calculated by S and P should be lower by about 1 and a half billion.
Brad Lander
3:48:06
We do feel strongly though, just as like a matter of budgeting, you can't count something as a reserve that you are also counting for spending next year.
3:48:14
So I mean what you're rolling into next year's budget, it isn't a reserve because you call it one.
3:48:21
Is a Right.
Justin Brannan
3:48:25
Besides being a way to protect city services during a downturn, reserves may be able to help us lower the effective cost of our capital projects.
3:48:34
In their ratings of the city's general obligation bonds, Moody's noted that stronger reserves including deposits to the revenue civilization fund would lead to a ratings increase.
3:48:43
So how much additional deposits into the reserves do you think would be necessary to effectuate a ratings increase?
3:48:49
Increase?
Brad Lander
3:48:51
You're acting as though they're like us as opposed to like the Oracle at Delphi.
3:48:57
Right.
Francesco Brindisi
3:49:00
I don't think that even Moody's would be able to tell you.
3:49:04
Right?
3:49:04
I think it's important.
3:49:06
And that's not just Moody's but Kroll and all of the rating agencies really.
3:49:11
They're saying if you have a rule.
3:49:12
If you have a policy that sort of tells you when you're going to deposit.
3:49:16
And under what conditions you're going to withdraw.
3:49:19
And that's a policy that's been implemented.
3:49:22
That's a credit positive.
3:49:23
Right?
3:49:24
You know, as a general matter, The US credit is AA one.
3:49:30
The TFA credit is AA one.
3:49:32
The GEO credit is AA two.
3:49:34
I mean, you know.
3:49:37
I would say that better reserve policy would help.
3:49:42
I don't know to what extent the rating agencies would go from there to increasing the rating.
Justin Brannan
3:49:48
But an increase in the city's bond rating would save the city in lower debt service costs.
3:49:53
Right?
Francesco Brindisi
3:49:53
It would.
3:49:54
Other other things equal.
3:49:56
You know, what we pay depends on you know, how our credit is seen and how much we issue.
3:50:01
We've been issuing a lot of debt.
3:50:05
The more you issue, the more compensation investors are going to ask for.