Moody’s Investment Services took a wait-and-see attitude today with the state’s new property-tax cap, declining to downgrade local governments’ debt but warning that it could hurt some struggling municipalities.
The ratings agency said the risk profile of debt subject to the new tax cap is “unchanged and not warranting a rating distinction.”
Moody’s has raised concerns about the tax cap, which was enacted last year and limits increases in property taxes to 2 percent a year—although can include exemptions.
The report didn’t address the tax cap’s effect on school districts. Residents will vote tomorrow on school budgets—the biggest test so far for the tax cap.
“Although New York state’s new property tax cap changes the process for raising property taxes to support general obligation debt of local governments (other than school districts), we believe that the risk profile of debt subject to the cap remains unchanged,” today’s report said. “However, the cap will pressure the credit quality of all New York local governments, and could result in a reduction of fund balance levels for some. Most vulnerable will be those with reserve levels already below average and without the flexibility to offset the new cap.”
Because local governments can be limited by how much they raise in tax revenue by the tax cap, it could pinch local budgets, the report said.
“Most vulnerable will be those with reserve levels already below average and without the flexibility to offset the new cap,” said Moody”s AVP-Analyst Robert Weber, the author of the report, in a statement.