A plan to partially pay down a backlog of tax certiorari judgments and settlements in Nassau County, N.Y., through a bond sale next month set off alarms at the authority created seven years ago to help dig the county of a fiscal crisis. County officials counter that their plan will help better manage the tax liabilities in the long run as they ready their first general obligation bond deal since 2000.
The Nassau County Interim Finance Authority “cannot endorse a fiscal policy that it was created in part to end,” NIFA chairman Ronald Stack said in letter sent yesterday to Nassau County Executive Thomas Suozzi.
NIFA’s board, which is required to comment upon proposed borrowings by the county, unanimously concluded that the county should not borrow to finance tax certiorari payments.
Municipalities make tax certiorari payments to property owners who successful challenge tax assessments.
In an interview, Stack — who is also a managing director and head of public finance at Lehman Brothers — characterized certiorari borrowing as a step backwards for Nassau.
“It’s an operating expense,” Stack said. “They should do as they’ve been talking about doing: [finance certiorari payments] as pay as you go, not borrow for it.”
The practice of borrowing for operating expenses is frowned upon, “especially given the history of the county, where it borrowed well in excess of $1 billion for certioraris,” he said.
Thomas Stokes, Nassau County deputy executive for management, budget, and finance, countered that using up to $50 million of bond proceeds to pay down part of an outstanding $137 million certiorari liability will allow the county to rely solely on pay-as-you-go financing in the future.
“We’re not talking about supplanting current operating funds for current obligations,” Stokes said. “We’re looking to draw down the liability that currently exists down to a manageable level to get constituents paid faster, to reduce interest costs.”
The county budgets $50 million annually for certiorari payments and anticipates annual liabilities of approximately $45 million, Stokes said. The county’s goal is to have no more than a two-year certiorari liability which, at about $90 million, would still be less than a quarter of the county’s approximate $400 million liability in 2001, he said.
In and of itself, the county’s move isn’t likely to affect its rating at this point, rating analysts said.
“The move toward funding the annual tax certs from operations, i.e. not bonding, is something the county is moving toward and we certainly cite it as a credit strength,” said Fitch Ratings analyst Jessalynn Moro. “A more important point is the fact that the county has gotten a grip on the outstanding liability and the backlog for tax certs so that that liability is no longer growing at the high rate that it was in the past.”
Fitch assigns the county’s GO debt its A-plus rating.
Standard & Poor’s analyst Eden Perry said borrowing to pay tax certs could potentially be a credit limitation, but it would have to be seen in a larger context.
“It’s a concern, but so far it’s a small amount of money,” she said. “Overall, we want to see how it fits into their financial plan.”
Standard & Poor’s assigns Nassau GOs its A rating.
Moody’s Investors Service upgraded the county’s GOs to A2 from A3 earlier this month.
The county plans two GO sales in the next two months to pay for an ongoing capital program as well as certiorari payments. The first, a $75 million variable-rate demand obligation deal, is expected to price on Dec. 12. Merrill Lynch & Co. will serve as remarketing agent. The bonds will be enhanced by a direct pay letter of credit from Bank of America NA.
The county also plans to competitively sell $125 million of fixed rate bonds in January.
Both deals will likely be 20-year serial bonds. Orrick, Herrington & Sutcliffe LLP and Public Financial Management Inc. are bond counsel and financial adviser, respectively, on both deals.
NIFA was created by the state in 2000 to help the wealthy Long Island county overcome a financial crisis created in part by certiorari borrowing that had reached $100 million annually. NIFA has sold $2.51 billion of bonds on Nassau County’s behalf since its first issuance of $245.7 million of sales tax secured bonds in 2000.