NYC receives highest ever rating from Standard and Poor's.

Standard and Poor's has raised its rating on New York City's more than $32 billion of general obligation debt outstanding to A+ from A--the highest rating Standard and Poor's has ever assigned to the city's debt. In upgrading New York's credit rating, Standard and Poor's cited the city's steady fiscal and economic recovery since 2001, strong budget management, and a comprehensive financial planning process.

"Although New York City continues to face challenges to its financial plan, along with significant out-year gaps, its long-term planning and proactive budget management mitigate these risks at the current rating level," said Robin Prunty, a Standard and Poor's credit analyst.

New York City's fiscal 2006 budget proposal was released May 5 and successfully closed a budget gap originally estimated at $3.1 billion. The proposal relies on stronger-than-forecasted revenue growth, significant prepayments from the fiscal 2005 surplus, various spending-reduction measures, and unspecified state and federal assistance. It also allows for some targeted tax reductions and the sunset of temporary income and sales tax increases that were instrumental in restoring budgetary balance during the recession and economic fallout following September 11.

Year-to-date revenue performance continues to be stronger than plan projections, highlighting the conservative nature of the current revenue forecast and the city's improving economy. Fiscal 2005 is now estimated to close with a $2.3 billion surplus, which will be used to reduce the fiscal 2006 budget gap.

The biggest risks to the city's fiscal 2006 budget and financial plan, according to Standard and Poor's, are the various labor contract negotiations that are currently pending. While there are resources in the financial plan to provide wage increases, a settlement above what is included in the current year plan will make the out-year gaps a more significant challenge.

After factoring in gap-closing measures outlined in the proposed 2006 budget, gaps for fiscals 2007, 2008, and 2009 are projected to total a substantial $4.4 billion, $4.2 billion, and $3.7 billion, respectively. The forecasted gaps are $1.8 billion higher in aggregate than those detailed in the January forecast. New York City has historically closed gaps through a balanced approach of broad spending reductions and revenue-enhancement measures, and has established a track record of success in this area.

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