Niagara Falls Near Junk as Casino Spat Drains CashFreeman Klopott and Brian Chappatta
Niagara Falls, the New York tourist mecca caught in the middle of a $600 million casino dispute between the state and the Seneca Nation of Indians, may run out of cash as soon as November. Investors are pushing the city’s borrowing costs to a 10-month high.
New York’s biggest Indian tribe stopped paying the state its 22 percent share of slot-machine revenue in 2009 after nontribal lottery terminals were allowed inside the tribe’s 10,500-square-mile (27,200-square-kilometer) exclusivity zone. Governor Andrew Cuomo said last month that the tribe owes New York $600 million and there’s little chance of reaching a settlement before an arbitration panel rules.
Niagara Falls stands to get $60 million of the state’s take from Seneca casinos, including one in the city of 50,000. Moody’s Investors Service cut Niagara to one step above junk on May 13 and warned that it could act again if the city doesn’t get its share. The city hasn’t had a speculative rating since 2006. The yield spread on some Niagara debt is the highest since August.
“If they weren’t insured, we might be selling them,” Clark Wagner, who oversees $1.6 billion of municipal debt as director of fixed income at First Investors Management Co. in New York, said of his Niagara Falls bonds. “The potential headaches are pretty large. We thought they could run out of money as early as July.”
Moody’s said that probably won’t happen until at least November. Mayor Paul Dyster, a Democrat, said by telephone that the state has arranged a $13.45 million bailout by speeding up annual payments from the New York Power Authority. The city hasn’t tapped the cash, said Connie Cullen, an NYPA spokeswoman. Still, the extra funds may not stop Moody’s from lowering Niagara Falls if the casino revenue doesn’t come through, Moody’s said.
Cuomo wants to turn around the upstate economy using casino revenue and by encouraging municipalities to merge services. The region’s cost of government grew 47 percent as the population fell 1.4 percent from 2000 to 2010, he says. The governor is pushing a plan for three upstate casinos as cities from Pennsylvania to Iowa count on gambling revenue to fill budget gaps after the recession that ended in 2009.
One of those casinos may be located near Niagara Falls, giving the city a chance at a share of the 10 percent of the state’s take that Cuomo wants to set aside for localities, the 55-year-old Democrat has said.
The city is home to Niagara Falls State Park, the nation’s oldest. The falls, which straddle the U.S.-Canada border, get more than 22 million visitors annually, making them one of the world’s 10 most popular tourist attractions, according to Travel and Leisure magazine.
Dyster has said he’ll go along with Cuomo’s casino plan for the region if the cash from the Senecas doesn’t come through. Investors aren’t as optimistic.
The yield on tax-exempt Niagara Falls bonds callable in December 2017 reached 4.45 percent on May 17, the highest since December 2011, data compiled by Bloomberg show. The spread over benchmark munis grew to about 3.2 percentage points last week, the widest since August, according to BVAL pricing analysis.
The bonds are insured by Assured Guaranty Municipal Corp., giving them an A2 Moody’s rating, sixth-highest. They’re graded Baa3, the lowest investment rank, without that protection. A reduction to the first tier of junk would mean principal and interest payments are “not well safeguarded during both good and bad times,” according to Moody’s.
The loss of Seneca payments drained a $20 million reserve the city had in 2011, Dyster said. Median household income from 2007 to 2011 was $32,617, compared with about $57,000 statewide, Census data show.
“The delays in casino revenue took their general-fund balances and pretty much wiped them out,” said Dennis Derby, who helps oversee about $34 billion in munis, including some city bonds maturing in 2014 and 2016, at Wells Capital Management in Menomonee Falls, Wisconsin. “Niagara Falls is in tough enough shape right now, and the longer this gets drawn out, the more painful it is for them.”
Susan Asquith, a spokeswoman for the Seneca Nation, didn’t respond to an e-mail or phone call. The tribe has a population of more than 8,000 and is the fifth-largest employer in Western New York. Its Niagara Casino & Hotel complex has 604 rooms, 4,000 slot machines and more than 100 live table games, its website says.
Rich Azzopardi, a Cuomo spokesman, didn’t respond to an e-mail and phone call.
There’s no publicly available timeline for when the arbitration board may rule, according to Patrick Sullivan, an attorney at Dickinson Wright PLLC in Washington who specializes in gaming and Indian law.
“Arbitration can take months, as this one has,” he said. “Everybody is waiting to find out how that’s going to go.”
As Cuomo has pushed his upstate casino proposal, the Oneidas in central New York and the Mohawks in the north near Canada struck revenue-sharing deals with the state and surrounding counties. They also won exclusivity zones around their gambling halls.
“We’re nowhere near a deal with the Senecas,” Cuomo said in a May 23 radio interview. “We plan to bid out western New York.”
New York has been battling the Senecas over money and sovereignty for decades. In 2010, the two sides fought in court over the state’s plan to implement a new tax on cigarette purchases made on the reservation. In the 1990s, the dispute over tobacco levies turned violent as Senecas blocked the New York Thruway, burning tires and skirmishing with state troopers.
Neighboring Massachusetts leads municipalities issuing a combined $5.5 billion this week, Bloomberg data show.
At 2.16 percent, yields on benchmark 10-year munis are close to a 15-month high, and compare with 2.13 percent for similar-maturity Treasuries.
The ratio of the two interest rates, a gauge of relative value, is about 101 percent, after exceeding 100 percent last week for the first time since May 8. The higher the figure, the cheaper munis are compared with federal securities.