Moody’s Investor Service affirmed Oyster Bay’s Baa3 long-term issuer credit rating this week. The agency also affirmed the town’s GOLT (general oblication unlimited tax) debt at the same level. The outlook on both is stable.
The move was something of a surprise, given earlier reports that had suggested the rating agency might be preparing more drastic action, including a possible downgrade to junk status or a withdrawal of its rating on the town altogether.
Those reports pointed to charges filed by the Securities Exchange Commission against the town and former Supervisor John Venditto, as well as a possible takeover by state officials of the town’s finances, with an accompanying moratorium on all borrowing.
The charges, filed in U.S. District Court for the Eastern District of New York on Nov. 21, alleged that the town failed to report that it had indirectly guaranteed four separate loans totaling more than $20 million to local restaurant owner Harendra Singh in 26 of its debt offerings between 2010 and 2015.
According to the Summary of Charges, which named the Town of Oyster Bay as co-defendant, Singh, the beneficiary of those guarantees, was described as one of the town’s “long-standing concessionaires.”
The “unusual decision” to guarantee the loans “was a result of the concessionaire’s long and close relationship with the town and Nassau County officials,” the summary continued, which Singh had “cultivated, in part, by providing various forms of gifts, bribes, kickbacks and political support” to those officials.
Venditto resigned as supervisor in January 2017, and was replaced by former state Assemblyman Joseph Saladino, who was subsequently elected to a full term in November and inaugurated this week.
Moody’s affirmation of the rating has to be seen as neutral, however, more than as the vote of confidence the word implies. The Baa3 rating is the lowest possible investment-grade rating.
Before the agency withdrew its rating altogether in early 2016, the town had been assigned a solid A3 rating. The town was assigned the lower rating shortly after Venditto’s resignation and Saladino’s subsequent appointment, but before any material changes in the town’s operations could be catalogued
The Dec. 27 report cited “the town’s weak fund balance and cash position following years of structural imbalance,” as well as its “elevated fixed costs” as reasons for the rating. And Oyster Bay has an unusually large amount of rated debt — more that $934 million, according to published Standard & Poor’s reports, including $177 million in bond-anticipation notes, or BANs
The town’s debt service in its 2018 approved budget is also unusually high. At $100 million, it represents fully one-third of the town’s $300 million 2018 budget, or more than $3,000 for each of the city’s 300,000 residents. The Town of Hempstead, with a population of more than 750,000, currently carries roughly $650 million in rated debt. Debt-service costs in 2018 total approximately $74 million, out of a budget of $591 million.
The Moody’s report also expressed concern about Oyster Bay’s “operational and financial uncertainty.” The town budget includes some or 12.5 percent of the total, or $42 million, in costs listed variously as “miscellaneous” or as “interfund transfers.”
Most towns include these lines in their chart of accounts in order to allow managers to address needs unforeseen when the budget was passed. In the City of Long Beach budget, the figure is 2.8 percent of the total, for example. Given the nature of the charges pending against the town in the Venditto case, the large amount of expenditure not specifically allocated is “worrying,” said the Moody’s spokesman.
The report wasn’t all bad news, however. On the plus side, it pointed to “improved operational results” since Saladino has been interim supervisor. At roughly $55.4 billion the city has a large and stable tax base, with residential value per capita of $186,534. Median family income is 194.4 percent of the national average. And despite its hefty debt burden, most of the town’s current debt issues are due to be repaid by 2030.
Nevertheless, the report emphasizes that new management will have to sustain and build on early efforts. A ratings downgrade is never out of the question. Among the factors that could lead to a worsening of the town’s credit scenario are uncertainty due to the Venditto litigation; failure to restore a positive fund balance; audited 2017 finances that are materially worse than the preliminary figures reported by management; a reversion to structural imbalances; significant deterioration in the town’s net cash position; or an inability to access the capital market to roll-over cash-flow notes or BANs.