DECEMBER 18, 2014

FEATURE ARTICLES
Puerto Rico Legislation Imperils Bond Issuance that Would Boost
Development Bank Liquidity

RESEARCH HIGHLIGHTS
2

Puerto Ricos legislature approved the issuance of bonds to pay back loans
made by the Government Development Bank. The legislature imposed
conditions that will delay, and may even prevent, the bond issuance, a
credit negative for GDB and Puerto Rico.

Nevada Budget Shortfall Erases Gains Made During Recovery

The New York State Gaming Facility Location Board announced its
recommendation for the location of three new casino projects in New
York State, a credit positive for the upstate host communities.

2015 Outlook - US Airports: Change to Positive on Economic Growth,

Higher Passenger Counts

13

RATING CHANGE HIGHLIGHTS

Alaska's Outlook Revised to Negative; Rating Aaa

14

The revision to negative from stable reflects a plunge in oil prices that now
threatens to rapidly reduce the state's budgetary reserves.

Atlantic City, NJ's GO Placed on Review for Downgrade; Rating Ba1

14

The Ba1 rating on review for downgrade, affecting $244 million, reflects
the impact of a recently postponed bond sale of $140 million.

Wayne State University (MI) Downgraded; Outlook Stable

The lower Colorado River basins major water users signed a non-binding
memorandum of understanding (MOU) to increase stored water at Lake
Mead, a primary Colorado River reservoir that serves Arizona, California
and Nevada. The MOU is credit positive for municipal water enterprises.

New York Casino Sites Named, Credit Positive for Host Municipalities

13

More seat capacity on US airlines, combined with continued growth in the

economy, will push enplanement growth to 3%-4% this year and in 2015,
exceeding our previous expectation of up to 2% growth in 2014..

The New Hampshire state Supreme Court ruled that increases to state and
local government employee pension contributions are allowed, a credit
positive that means that state and local governments will not have to
refund increased employee contributions.

Agreement Eases Colorado River Shortage Risk for Arizona, California

and Nevada; Signifies Continuing Efforts to Address Water Issues
Collaboratively

2015 Outlook - US Regulated Utilities: Regulatory Support Drives Our

Stable Outlook
Our outlook reflects our expectation that regulatory support will continue
to help utilities recover costs and maintain stable cash flow, even with
competition from energy-efficiency efforts.

New Jersey lawmakers failed to renew a law authorizing local

governments to use red light cameras that served as a revenue generator.
This development is credit negative because it further constrains
governments ability to implement new revenue streams.

New Hampshire State and Local Pension Reforms Upheld by State

High Court, a Credit Positive

13

Our outlook reflects our expectation that debt service coverage and
liquidity will remain sound, supported by the ability of public power
electric utilities to raise consumer rates when needed.

Nevada announced a projected budget shortfall of $162 million for the 2015
fiscal year. We expect Nevada to use reserves to fund the shortfall, a credit
negative step backward at a time when most states are rebuilding reserves.

State and Local Governments Put Brakes on Traffic Violation Cameras,

a Credit Negative

2015 Outlook - US Public Power Electric Utilities: Steady Financial

Metrics Drive Stable Outlook

14

The downgrade to Aa3, affecting $496.6 million, reflects our expectation

of continued negative pressure on key revenue sources.

Kenyon Colleges (OH) Outlook Revised to Stable from Negative; Rating A1

11

14

The revision, affecting $189 million, reflects improved operating

performance in FY 2014.

UnityPoints Outlook (IA) Revised to Stable from Negative; Rating A3

14

The revision, affecting $935 million, reflects UnityPoint's improved samestore operating performance.

Baltimore (MD) Conventions Center Hotel Revenue Bonds Outlook

Revised to Stable from Negative; Rating Ba1
The revision, affecting $293.7 million, reflects the stabilization of the
hotel's operating margins and corresponding financial metrics.

Access our moodys.com public finance landing page at

moodys.com/UsPublicFinance

MOODYS.COM

14

Ted Hampton
Vice President - Senior Credit Officer
+1.212.553.2741
ted.hampton@moodys.com

Puerto Rico Legislation Imperils Bond Issuance that Would Boost Development
Bank Liquidity
During its annual session ended on December 12, Puerto Ricos legislature approved the issuance of bonds
by the Puerto Rico Infrastructure Financing Authority (PRIFA) to pay back loans made by the Government
Development Bank for Puerto Rico (GDB, B3 negative) to Puerto Rico Highway and Transportation
Authority (PRHTA, Caa1/Caa2 negative). The transactions would help maintain GDBs liquidity by
repaying $2.2 billion of principal and interest on the loans. However, the legislature imposed conditions
that will delay, and may even prevent, the bond issuance, a credit negative for GDB and for Puerto Rico
(B2 negative) itself, which relies on the continued liquidity of GDB. To issue bonds, amendments to
authorizing legislation will have to be made when lawmakers reconvene in January.
Authorizing legislation would raise the petroleum products tax by 68% to $15.50 per barrel from $9.25,
allowing Puerto Rico to pledge 61% of the total tax, or $9.50 per barrel, to the new bonds (see exhibit
below). PRIFA is an attractive issuer because it is not legally allowed to restructure debt under a
bankruptcy-like law that Puerto Rico passed this summer.
EXHIBIT

Puerto Rico Petroleum Taxes and Pledges

Pledged to 1998 Bonds

Other Petroleum Products Tax at HTA

PRIFA

$18

Estimated total revenues

$444 million

$16
$14

$ per Barrel

$12
$10

Estimated total revenues

$265 million

$8

$3.25

$9.50

$6
$4
$2

$6.00

$6.00

Current

Pro forma

$-

Source: Government Development Bank for Puerto Rico

Puerto Rico Governor Alejandro Garca Padilla on December 12 said that he would sign the bill (HB 2212),
even though the legislature added conditions that impede a bond sale. One condition requires that the
petroleum products tax increase be contingent on implementation of a broad tax overhaul, which will be
far more complex and time-consuming than the petroleum tax increase alone. Another excised a
provision for annual inflation adjustments to the petroleum tax. A third limits borrowing costs on bonds
backed by the new tax revenues, capping the coupon at 8.5% and requiring an issue price of at least 93
cents on the dollar. Depending on the maturity and security features of the bonds, these limits threaten
to thwart the planned sale, given that investors in Puerto Rico securities have demanded high yields in
recent months.

This publication does not announce

a credit rating action. For any
credit ratings referenced in this
publication, please see the ratings
tab on the issuer/entity page on
www.moodys.com for the most
updated credit rating action
information and rating history.

Amendments removing these provisions could be enacted in the legislative session starting next month,
leaving time for a February offering of the PRIFA bonds. GDB President Melba Acosta in a statement
underscored the importance of making the PRIFA bonds attractive to investors. The law already includes
some provisions to that end: a general obligation guarantee from Puerto Rico and a stipulation that any
related legal proceedings take place in New York City.
If sold, the new petroleum products tax bonds would help sustain liquidity at GDB, which serves not only
as the central governments fiscal agent, but also as its fund repository. GDB reported total net liquidity of

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

$1.7 billion as of October 31, consisting of $2.1 billion of securities, bank deposits and money market
instruments, net of securities pledged as collateral. Failure to refinance loans to PRHTA would put GDB on
a path toward insufficient reserves at a time when it will face mounting pressure from its own debtservice requirements. Principal payments due on GDBs notes rise to $876 million in the fiscal year ending
June 30, 2016, from $481 million in fiscal 2015.

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

Julius Vizner
Assistant Vice President - Analyst
+1.212.553.0334
julius.vizner@moodys.com

Nevada Budget Shortfall Erases Gains Made During Recovery

On December 8, Nevadas Interim Finance Committee announced a projected budget shortfall of $162
million for the fiscal year ending June 30, 2015, owing to weak gaming and mining revenues and higherthan-expected school enrollment. We expect Nevada (general obligation limited tax Aa2 stable) to use
reserves to fund the shortfall, a credit negative step backward at a time when most states are
rebuilding reserves.
Nevada expects to end fiscal 2015 with an available fund balance of $8 million, which is $162 million
below the statutorily required minimum of 5% of the $3.3 billion budget and $170 million below what
the state had previously expected. The state revised revenues downward by $87 million because of
weakness in mining and gaming revenues. The state revised spending upward by $81 million mostly owing
to unexpectedly strong growth in school enrollments.
Nevada, like most states, has been slowly rebuilding reserves over the past few years, although Nevadas
reserves remain well below their pre-recession peaks (see exhibit below). The last of the 50 US states to
exit the recession, doing so in 2011, Nevada was able to get its available fund balance, the sum of the
unassigned fund balance reported in the general fund and its rainy day fund, into positive territory in fiscal
2013. However, the new shortfall will erase those gains as the state uses the reserves it built up over the
past couple of years to plug the deficit. The decrease in reserves will cause it to lose ground against peers
that are expanding their financial cushions.
EXHIBIT

Nevadas Available Balances

$Millions

Amount, Nevada - left

Percent of Total Revenues, 50-state median - right axis

Percent of Total Revenues, Nevada - right axis

$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
-$50
-$100
-$150

18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Note: Available balances are the sum of the unassigned fund balance and the rainy day fund.
Source:
Moodys Investors Service

The state revised down gaming revenues by $41.5 million, reflecting that their recovery has not been as
robust as during previous economic recoveries. Gaming win, the revenues that casinos net, was down
4.6% in the three months that ended October 2014.
Nevertheless, we still expect Las Vegas, Nevada (Aa2 stable), to outperform struggling regional gaming
markets. Renewed consumer confidence owing to lower gas prices and increasing payrolls will fuel growth
from US tourists and Las Vegas will retain its unique position as a destination for overseas visitors. In the
2007-09 recession, the state was able to enact revenue enhancements that balanced the budget on a
temporary basis, and we expect that the state will again adopt measures to improve its budgetary
position in the next budgetary biennium.

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

Robert Weber
Vice President - Senior Analyst
+1.212.553.7280
robert.weber@moodys.com
Valentina Gomez
Analyst
+1.212.553.4861
valentina.gomez@moodys.com
David Strungis
Associate Analyst
+1.212.553.7422
david.strungis@moodys.com

State and Local Governments Put Brakes on Traffic Violation Cameras,

a Credit Negative
On Tuesday, State of New Jersey (A1 negative) lawmakers failed to renew a law authorizing local
governments to use red light cameras that served as a revenue generator. The day before, the Nassau
County, New York (A2 stable), legislature repealed a law authorizing the use of speed cameras near
schools. These developments are credit negative because they further constrain governments ability to
implement new revenue streams at a time when these governments are facing property tax limits, uneven
sales tax growth and anti-tax sentiment.
Nassau County implemented its speed camera program in July 2014 and immediately met public
resistance. The county rescinded approximately 40,000 speeding violations issued in July and August as a
result of the opposition and subsequently announced that it would scale back the program before
ultimately rescinding it. Net county collections from the cameras, after the vendors contracted share,
were $21 million between September and November, indicating that the county would have exceeded
the $30 million (1% of total revenues) in speed camera revenue for which it had budgeted in 2015.
Neighboring Suffolk County (A3 stable), which had projected only $2.5 million from speed cameras for
2015, chose to scrap its plan earlier this month before it had even begun, partially based on the Nassau
experience.
Meanwhile, 25 municipalities in New Jersey had installed red light cameras operated by two private
companies as part of the states five-year pilot program beginning in 2008 (see exhibit). In August 2014,
the state judiciary tossed 17,000 tickets because one of the companies, Automated Traffic Solutions,
failed to deliver them within a set time frame. That same month, the former CEO of the other company,
Redflex, was indicted on federal corruption charges. The two events, general public discontent and
questions about the effectiveness of the cameras contributed to the state legislatures decision to let the
law lapse.

EXHIBIT

New Jersey Municipalities to Abandon Red Light Cameras

Brick Township (Aa2)

Edison (Aa2 stable)

Lawrence Township (Aa3)

Palisades Park (Aa3)

Springfield (unrated)

Cherry Hill (Aa2 stable)

Englewood Cliffs (Aa2)

Linden (Aa3)

Piscataway (Aa2)

Stratford (unrated)

Deptford (Aa3)

Glassboro (A1)

Monroe Township (A1)

Pohatcong Township (unrated)

Union Township (Aa2)

East Brunswick (Aa1)

Gloucester Township (A1

stable)

New Brunswick (A2)

Rahway (A1)

Wayne (Aaa negative)

East Windsor (unrated)

Jersey City (A1 stable)

Newark (Baa1 negative)

Roselle Park (Aa3)

Woodbridge (Aa2)

Source: State of New Jersey Department of Transportation

The cameras in New Jersey typically generated 1%-2% of participating local governments total revenues,
an amount significant enough for the mayor of Newark, New Jersey (Baa1 negative), to lead an effort to
keep the cameras. In 2010, Newark generated $1.4 million from the program, which the mayor said had
increased to $4 million annually. Brick Township, New Jersey (Aa2), which ended its program in February
after a new administration took office, generated about $1.5 million (1.6% of revenues) last year.
This weeks events came roughly a week after Ohios (Aa1 stable) legislature passed a bill effectively
eliminating traffic cameras in the state. That bill awaits the governors signature. According to the
Insurance Institute for Highway Safety, nearly 500 communities in 23 states have adopted red light
cameras, and 140 have adopted speed cameras, but public frustration is prompting some communities to
abandon the programs.
Local governments elsewhere have faced lawsuits over such programs, or referendums to limit them.
Before the Ohio legislative action to effectively eliminate traffic cameras by requiring police officers be

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

present when a violation takes place, voters in the Ohio municipalities of Cleveland (A1 stable) and Maple
Heights (Baa3 negative) took similar action in November votes.
The effectiveness of cameras as a revenue generator often wanes as drivers alter their behavior to avoid
tickets. In Nassau, the county executive reported a 70% decline in violations related to speed cameras
after two months of operation. Red light camera revenues, a separate program in operation for a number
of years in Nassau and Suffolk, have remained flat despite the increasing use in both counties.

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

Thomas Aaron
Assistant Vice President Analyst
+1.312.706.9967
thomas.aaron@moodys.com
John Lombardi
Associate Analyst
+1.212.553.2819
john.lombardi@moodys.com
Nicholas Lehman
Analyst
+1.617.371.2940
nicholas.lehman@moodys.com

New Hampshire Pension Reforms Upheld by State High Court, a Credit Positive
On December 10, the New Hampshire state Supreme Court ruled that increases to state and local
government employee pension contributions are allowed. The high court reversed a lower court decision
that the states 2011 implementation of higher employee contributions was partially illegal. Other aspects
of the states pension reforms have been challenged in separate lawsuits that remain unresolved. The
state high courts decision is credit positive and establishes a clear legal precedent for the state to
implement employee contribution increases for state and local government pensions (see Exhibit 1). The
decision also eliminates the risk that the pension system would be forced to refund increased employee
contributions, which would have negatively affected state and local government finances.
EXHIBIT 1

New Hampshire Supreme Court Upheld State and Local Employee Pension Contribution Shift
Changes took effect in fiscal 2012
Employee Contributions (L)
Employer Contribution Rate (R)

Employer Contributions (L)

Employee Contribution Rate (R)

$500

14%

$450

10%

$ in millions

$350
$300

8%

$250
6%

$200
$150

4%

$100

% of Covered Payroll

12%

$400

2%

$50
$0

0%
2010

2011

2012

2013

Note: Contributions and contribution rates represent aggregation of all employee types; exclude medical subsidies.
Source: New Hampshire Retirement System Actuarial Valuation

Employees have contributed an extra $159 million to the retirement system as a result of mandated
employee contribution hikes that took effect in 2012 ($172 million in present value as of June 30,
2014) (see Exhibit 2.) The hikes included increases for employees and teachers to 7% from 5% of
salary, firefighters to 11.55% from 9.3% and police to 11.8% from 9.3%. The ruling eliminates the
risk that these contributions would have to be refunded and relieves any additional budgetary
pressure from additional costs to the state and local governments. Prior to the increase to employee
contributions, local government annual pension contributions were increasing over 10% annually.
Since the reforms, growth in annual contributions has fallen to below 10%, providing some
budgetary flexibility. The states retirement costs decreased by approximately 36% 1 as a result of the
reform.

This is the impact of the full reform package and includes the state share of local retirement costs at zero.

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

EXHIBIT 2

Employee Contribution Increases Above Previous Requirements Have Amounted to $172 Million
Since Taking Effect
Fiscal Year

2012

General
Employees

Teachers

Police

Fire

Total

Total with
interest to
6/30/2014

$23.00

$21.43

$5.98

$2.84

$53.25

$57.37

2013

$22.23

$21.17

$6.04

$2.90

$52.34

$60.77

2014

$22.40

$21.57

$6.23

$3.35

$53.55

$53.55

TOTAL

$67.63

$64.17

$18.25

$9.09

$159.14

$171.70

Source: Moodys Investors Service, New Hampshire Retirement System

The high court ruling also confirms that the state legislature has the legal authority to increase
employee contribution rates for both current and future employees. The court ruled that the
legislature never intended to establish employee contribution rates at previous levels as a
contractual right.
New Hampshires (Aa1 stable) fiscal 2013 adjusted net pension liability (ANPL) to revenues of 40.2%
ranks 36 of the 50 states and is significantly below the median of 60.3%. State local government
ANPLs are generally larger than the national medians. For example, the cities of Concord (Aa1),
Manchester (Aa2 stable) and Nashua (Aa2 stable) have three-year average ANPLs as a percent of
operating revenues of 2.64 times, 3.36 times and 2.01 times, respectively. These liabilities remain a
challenge and are well above the Moodys 2013 national median of 1.16 times operating revenues for
all US cities.
Litigation associated with other pension reforms remain unresolved. In addition to the employee
contribution increases mandated in 2011 by House Bill No. 2, the legislation also limited the types of
compensation that municipalities can consider when determining pension benefits, reducing benefit
multipliers and increasing the numbers of years considered as part of final compensation for
pensions.
House Bill No. 2 reduced the pension systems unfunded liability by approximately $430 million, as of
June 30, 2011. Because the employee contribution increases had not yet taken effect, this entire amount
is associated with accrued liability reductions and represents the amount (as of June 30, 2011) at risk if
the state loses the outstanding legal challenges to House Bill No. 2.
The other disputed provisions of House Bill No. 2 were stayed by a lower court, pending the outcome at
the state Supreme Court regarding another pension reform measure, House Bill 1645 (2009). HB 1645
implemented similar changes for certain employees (teachers). Arguments on this case were heard by the
state high court in November 2014.

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

William Oh
Analyst
+1.415. 274.1739
william.oh@moodys.com
Michael Wertz
AVP-Analyst
+1.212. 553.3830
michael.wertz@moodys.com

Agreement Eases Colorado River Shortage Risk for Arizona, California and Nevada;
Signifies Continuing Efforts to Address Water Issues Collaboratively
On December 10, the lower Colorado River basins major water users signed a non-binding memorandum
of understanding (MOU) to increase stored water at Lake Mead, a primary reservoir on the Colorado River
that serves Arizona, California and Nevada. The MOU is credit positive for lower basin water suppliers
such as the Central Arizona Water Conservation District (CAWCD, unrated) and the Southern Nevada
Water Authority (SNWA, unrated) because it decreases the risk of mandated water supply reductions in
Arizona and Nevada. The Metropolitan Water District of Southern California (MWD, Aa1 stable) will also
benefit, though similar mandated reductions are much less likely in California.
Other anticipated beneficiaries are municipal water agencies, including Phoenix Water Enterprise (Aa2
stable), Tucson Water Enterprise (Aa2 stable), Las Vegas Valley Water District (Aa2 stable), Los Angeles
Department of Water and Water-Power System (Aa2 stable) and San Diego County Water Authority (Aa2
stable).
The MOU calls for Lake Meads water elevation to increase further above 1,075 acre-feet (AF). Arizona
and Nevada would suffer allocation reductions below that mark.
According to the MOU, the three lower basin states (Arizona, Nevada and California) will aim to
collectively store an additional 740,000 acre-feet in Lake Mead by 2017, reducing the likelihood of the
water elevation falling below 1,075 feet. Lake Meads elevation was 1,085 feet as of December 16.
The agreement also serves to avoid the water level falling to 1,000 feet or below, which would
significantly pressure Colorado River water deliveries and potentially trigger a complex reconsideration of
interstate water rights priority. While the probability of a decline to 1,000 feet in the next several years is
remote, initiatives stemming from the MOU could extend that horizon.
Besides Arizonas CAWCD, Nevadas SNWA and Californias MWD, signatories to the agreement include
the US Bureau of Reclamation, the Arizona Department of Water Resources, the Colorado River Board of
California and the Colorado River Commission of Nevada.
To get to the additional 740,000 acre-feet, CAWCD would contribute 345,000, MWD would contribute
300,000, SNWA would add 45,000, and the Bureau of Reclamation would contribute 50,000.
MWD could make its contribution through new conservation programs. While the cost is not specified, it
will likely be approximately $45 million, only 3% of MWDs total annual revenues. Despite the California
drought, MWDs willingness to participate in the agreement underscores how much its current, locally
stored water is sufficient to continue meeting its delivery demands.
For CAWCD, the cost of meeting its MOU contribution is estimated at just $4.9 million (or 2.3% of 2013
operating revenues), where the funds will be used to compensate agricultural districts that receive lower
supply.
SNWA estimates its cost at less than 1% of operating revenues (approximately $1.3 million), coming from
initiatives such as restarting groundwater deliveries to Lake Mead or recovery of banked groundwater in
Arizona or Nevada.
In addition to the 2017 goals, the MOU looks to generate 1.5 million to 3 million acre-feet of protection
volume in Lake Mead by 2019. MOU signatories also agree to address urgent needs.
As weve noted in previous publications, water managers in the lower basin states have long recognized
the challenge of securing water supplies and taken steps to increase storage, improve infrastructure and
strengthen policies to manage consumption. As a result, Arizona and Nevada receive less than their legal

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

allocation of Colorado River water and will likely be able to reach the goals laid out in the MOU without
significant financial or operational impact.
Californias share of Colorado River water will not be reduced under all shortage scenarios identified by
the Secretary of the Interiors 2007 Record of Decision. Instead, Arizona and Nevada would receive
reduced allocation starting at 1,075 feet (see Exhibit). However, there is no water shortage allocation
agreement in place in the unlikely event that the water elevation falls below 1,000 feet.
MWDs participation in the agreement acknowledges it believes there is a need to continue collaborating
on how to address water issues in the lower Colorado River basin, which has experienced drought
conditions in 11 of the past 15 years.
EXHIBIT

Lake Meads Water Elevation Has Remained Above Mandated Reduction Levels
Water Allocation Reductions Occur at 1,075 feet
Lake Mead Elevation (ft), 1984-2014

Shortage Allocation Level (ft)

1,250

Heigh of Lake Mead (ft)

1,200
1,150
1,100
1,050

2013

2014

2011

2012

2010

2009

2007

2008

2005

2006

2003

2004

2001

2002

1999

2000

1997

1998

1995

1996

1993

1994

1991

1992

1989

1990

1987

1988

1985

1986

1984

1,000

Source: US Bureau of Reclamation

10

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

Valentina Gomez
Analyst
+1.212.553.4861
valentina.gomez@moodys.com
Robert Weber
Vice President - Senior Analyst
+1.212.553.7280
robert.weber@moodys.com

New York Casino Sites Named, Credit Positive for Host Municipalities
On December 17, the New York State Gaming Facility Location Board announced its recommendation for
the location of three new casino projects in New York State (Aa1 stable), a credit positive for the upstate
host communities. The economies of the Town Of Thompson (Aa3) in Sullivan County (Aa3), the City of
Schenectady (A3 negative) in Schenectady County (Aa1) and Town of Tyre (unrated) in Seneca County
(unrated) will benefit from additional employment in the construction and gaming industries. These local
governments will also benefit from casino host fees, potential for sales tax growth and property tax base
expansion (see Exhibit 1). However, the long-term economic benefit of the casinos could be muted given
the competition from the many other casinos throughout the Northeast.
EXHIBIT

Casino Projects Expected to Bring Revenues and Jobs

County

Projected
Project Size

Projected Casino
Hosting Fees

% of 2013
County Revenues

Projected
New Jobs

% Increase
in Employed
Labor Force

$1.1 billion

$14.7 million

9.4%

2,400

8.1%

Schenectady

$300 million

$13.1 million

5.5%

1,200

1.7%

Seneca

$425 million

$6.9 million

12.7%

1,800

11.7%

Sullivan

Source: New York State Gaming Commission; Bureau of Labor Statistics

The Location Board chose from 16 proposals, all of which included estimates for significant job creation
and regional economic impact. Montreign Operating Company, LLC expects that its $1.1 billion proposed
casino in Thompson will involve $326 million in spending for the construction of the casino, anticipated
to take 24 months. The company projects 2,400 new jobs (119% of total unemployed county workforce),
making the casino the largest employer in the county, and $73 million in new wages once the casino
opens. Capital Region Gaming, LLCs proposal for Rivers Casino & Resort at Mohawk Harbor in
Schenectady includes a projected 1,200 new jobs (32% of unemployed) and $50 million in annual payroll,
benefits and tips. The proposal for Wilmorite Inc.s Lago Resort & Casino in Seneca incorporates
projections of 1,200 construction jobs and up to 1,800 casino related jobs (225% of unemployed) at full
operation.
Host counties will receive direct casino fees in addition to increased job creation and potential sales tax
growth. The New York State Gaming Commission estimates host fees of $14.7 million for Sullivan, $13.1
million for Schenectady and $6.9 million for Seneca. The respective towns and school districts will receive
smaller amounts, but all host municipalities will likely see increases to local property taxes driven by the
new construction and sales tax growth driven first by construction activity and eventually by tourism
generated by the casinos.
According to the casino applications, all three companies assume significant job creation both during
construction and once the casinos are operational. However, construction jobs only provide a temporary
employment boost during the construction phase, however, and do not provide a long-term economic
benefit. Additionally, casino jobs tend to be lower paying and less likely to lead to significant
improvement in overall wealth levels in host communities.
Moodys outlook on the US Gaming Industry is currently negative, driven by weak revenues, waning
demand and high fixed costs. Gaming revenues, particularly outside of Las Vegas (Aa2 stable), are down in
areas across the country and it remains to be seen if the estimates provided by the Gaming Commission
and the casino companies themselves come to fruition. Four casinos have closed so far this year in
Atlantic City, NJ (Ba1 on review for downgrade), due to a weakened brand and regional competition.
While the Location Board focused on locating casinos far away from existing tribal casinos in New York,
the new casinos will face competition from casinos in Atlantic City, although no new casinos are located
near the New Jersey border, as well as Pennsylvania (Aa3 stable), Connecticut (Aa3 stable) and

11

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

Massachusetts (Aa1 stable), as well as the existing New York casinos. New revenues may also be offset by
increased expenditures for infrastructure improvements and public safety. Significant increases in traffic
and tourism will likely require an additional police presence. Host municipalities may also need to
improve existing infrastructure, particularly roads and bridges, in order to accommodate increases in
traffic.

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MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

RESEARCH HIGHLIGHTS
2015 Outlook US Public Power Electric Utilities: Steady Financial Metrics Drive Stable Outlook
Our stable outlook for the US public power industry reflects our expectation that debt service coverage
and liquidity in the industry will remain sound, supported by the ability of public power electric utilities to
raise consumer rates when needed to recover the costs of generating and distributing electricity. Slow
growth in demand for electricity will put pressure on utilities to raise electric rates because their fixed
costs will have to be spread out over the same or a lower volume of electricity. Still, the improving US
economy and another year of low natural-gas prices will help keep electric rate increases moderate.
2015 Outlook - US Regulated Utilities: Regulatory Support Drives Our Stable Outlook
Our stable outlook for the US regulated utility industry for 2015 reflects our expectation that regulatory
support will continue to help utilities recover costs and maintain stable cash flow, even with competition
from distributed generation or energy-efficiency efforts that keep overall demand growth low. The
consistency and predictability of the regulatory environment is a fundamental driver of our outlook
because it allows utilities to manage their cash flow and capital spending based on expectations for
adequate cost recovery.
2015 Outlook - US Airports: Change to Positive on Economic Growth, Higher Passenger Counts
More seat capacity on US airlines, combined with continued growth in the US economy, will push
enplanement growth between 3% and 4% this year and in 2015, exceeding our previous expectation of
up to 2% growth in 2014. Enplanement growth, or the number of passengers using an airport to depart
on a flight, is important for the airport industry because it often translates into higher parking and airportterminal concession revenues. Higher revenue provides stronger debt service coverage and in most cases
results in more liquidity.

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MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

RATING CHANGE HIGHLIGHTS

Alaska's Outlook Revised to Negative; Rating Aaa
Dec 16 We revised the outlook for the State of Alaska to negative from stable, following a plunge in oil
prices since the start of the state's fiscal year that now threatens to rapidly and significantly reduce the
state's budgetary reserves. The outlook applies to $840 million of general obligation (GO) debt, rated
Aaa; $290 million of subject-to-appropriation debt, rated Aa1; and about $870 million of bonds backed
by the state's moral obligation that have been issued by the Alaska Municipal Bond Bank and by the
Alaska Energy Authority and that are rated Aa2.
Atlantic City, NJ's GO Placed on Review for Downgrade
Dec 11 We placed the Ba1 general obligation bond rating of Atlantic City, NJ on review for downgrade,
affecting $244 million. The review for downgrade reflects our view that Atlantic City's recently postponed
bond sale of $140 million poses significant budgetary, cash flow and balance sheet risk. If pending revenue
sources do not come in as planned, the city could face a $72 million shortfall, which is a significant 27.6%
of the city's budget. The review will consider the city's immediate liquidity challenges and its ongoing
cash flow needs relative to obligations. The review will also consider final 2014 financial results and the
citys plans to address the fiscal 2015 budget gap.
Wayne State University (MI) Downgraded; Outlook Stable
Dec 11 We downgraded Wayne State University to Aa3, affecting $496.6 million. The outlook is stable.
The downgrade reflects our expectation of continued negative pressure on key revenue sources, including
net tuition revenue, state funding and a competitive research environment. We expect that this pressure
will continue to strain operating performance, hindering the ability of the university to rebuild
unrestricted reserves after a recent spend down for strategic initiatives.
Kenyon Colleges (OH) Outlook Revised to Stable from Negative; Rating A1
Dec 12 We revised the outlook for the A1 rating on Kenyon College's revenue bonds to stable from
negative, affecting $189 million. The outlook change reflects improved operating performance in FY 2014
and our expectation that cash flow will remain highly positive and growth in financial resources will
outpace that of peers.
UnityPoints Outlook (IA) Revised to Stable from Negative; Rating A3
Dec 11 We revised the outlook to stable from negative for UnityPoint's Aa3 and Aa3/P-1 ratings on
outstanding debt, affecting $935 million. The outlook change reflects UnityPoint's improved same-store
operating performance and balance sheet metrics in FY 2013 and into interim FY 2014, as well as our
expectation that operating gains will continue.
Baltimore (MD) Conventions Center Hotel Revenue Bonds Outlook Revised to Stable from Negative;
Rating Ba1
Dec 11 We revised the outlook to stable from negative for the Ba1 senior and Ba2 subordinate ratings on
the Baltimore (MD) Hotel Corporation's Convention Center Hotel Revenue Bonds, Senior Series 2006A
and Subordinate Series 2006B, affecting $293.7 million. The outlook change reflects the stabilization of
the hotel's operating margins and corresponding financial metrics, as well as its improved cash flow
predictability. It also reflects our expectation that the hotel's stable operating and financial profile will
continue.

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MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION

DECEMBER 18, 2014

CREDIT RATINGS & ANALYSIS

State Government Ratings

EDITORIAL CONTENT

Michel Madelain
President and Chief Operating Officer

Robert Kurtter
Managing Director, US Public Finance

Crystal Carrafiello
Senior Vice President, Rating Communications

Michael Rowan
Managing Director, Global Public, Project &
Infrastructure Finance

Tim Blake
Managing Director, US Public Finance

Gail Sussman
Managing Director, US Public Finance

Healthcare, Higher Education, Not-for-Profits

John Nelson
Director of Research, Global Public, Project,
Infrastructure Finance
Christopher Holmes
Director of Research, US Public Finance

Local Government Ratings

Jack Dorer
Managing Director, US Public Finance
Naomi Richman
Managing Director, US Public Finance

Kendra Smith
Managing Director, US Public Finance

Housing
Kendra Smith
Managing Director, US Public Finance

Public Infrastructure
Chee Mee Hu
Managing Director, Project Finance

Robert Cox
Senior Editor, Rating Communications

MARKETING & PRODUCT STRATEGY

John Walter
Director, Senior Product Strategist
Sara Harris
Assistant Director, Product Strategist

PRODUCTION
Jason Lee
Vice President, Production
Lisa Mahapatra
Data Visualization Associate

WEBSITE
www.moodys.com

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