Why Elmira's Bond Rating Is Negative, But Chemung County's Is Positive

Dec 5, 2016

Credit athrasher / Flickr

Bond ratings can be hard to understand. These reports are generally for investors and anyone purchasing debt. 

Last month, Moody’s Investors Service issued bond rating reports for the City of Elmira and Chemung County. Elmira got a negative rating (specifically, Moody gave them a "Ba2" rating), while Chemung’s rating was positive (or "A1"). This is even though Elmira is in Chemung County. 

Moody’s says there are a lot similarities in the economic makeup of Elmira and Chemung County. Jobs have left, the population has dropped and the result is a smaller tax base to draw from. 

So why does Moody's say Chemung County is a good bet for investors, but Elmira isn't?

For one, the way sales tax revenue is distributed benefits the County. “While they are both exposed to economically sensitive sales tax revenues, the County has been able to mitigate much of the loss associated with this," said Cristin Jacoby, who worked on both reports for Moody's. 

Chemung County changed the sales tax distribution formula in 2013. Now, the county gets a higher percentage than its municipalities. "So [Chemung] currently is planning to keep more for itself,” Jacoby said.

This means Elmira has had to find other sources of revenue, like property taxes. The city has been able to go over the state cap in recent years and that’s eased the financial burden. Moody’s considers this a positive. Still, job loss and a shrinking tax base have hit Elmira harder than the County. 

“[Elmira's] income and wealth levels are much lower than the County’s and it’s poverty rates are higher," Jacoby explained. "So, though it’s been able to increase its taxes in recent years above the cap, these lower income and wealth levels may limit their ability to raise revenue going forward.” 

As far as what a negative reports means for residents, it means Elmira is viewed as a larger credit risk next time it goes to issue debt. 

“If you have a rating for something like Elmira that’s speculative grade, that is going to cost the residents of that town more when they to borrow debt than it would for a county like Chemung.” 

In addition to a negative report, Moody’s gave Elmira a negative outlook. That means it expects the city to be financially strained for the near future. 

To get a view of each financial situation, take a look at each budget for 2017. Elmira raised taxes and cut operating expenses just to break even. Meanwhile, Chemung avoided raising taxes for the 12th straight year.