Nassau County, N.Y., plans to competitively sell $141.7 million of general obligation bonds Wednesday.
The Nassau County Interim Finance Authority, a board that monitors the county’s finances, has criticized the debt sale for continuing a recent practice of borrowing to pay successful property tax assessment challenges — also known as tax certiorari settlements.
In a July 26 letter to County Executive Edward Mangano, NIFA chairman Ronald Stack said the debt sale would only include $20.1 million for capital projects, compared with $86 million for early retirement incentive packages, $20.5 million for judgments and settlements, and $20 million for tax certiorari refunds.
“The use of long-term debt to fund operating expenses and working capital is imprudent and fiscally unacceptable,” Stack wrote. Nassau’s tax certiorari liability is projected at $100 million this year.
Calls to Mangano’s office were not returned by press time. Nassau County has 1.35 million residents and is located just east of New York City on Long Island. Its median household income of $107,890 was 171% of the national median in 2008, according to the U.S. Census.
The state created NIFA in 2000 to issue bonds and oversee county finances at a time of fiscal crisis, partly due to borrowing to pay tax certiorari liabilities.
In 2003, Nassau began a shift toward satisfying the liability through pay as you go. By 2006, it had set aside $50 million to cover the claims. It has increased borrowing to fund the liability since 2007 and plans to suspend pay as you go for tax certiorari claims over the next three years.
“Increased reliance on bond funding for tax refunds is expected to exacerbate the county’s structural operating imbalance,” Moody’s Investors Service said in a rating report. Moody’s also cited the repeal this year of a home heating energy tax, which added $19.8 million to a current-year budget gap of $133.2 million in Nassau’s projected $3.01 billion spending plan. The tax repeal is projected to reduce county revenue by $40 million annually.
Moody’s said structural gaps are likely to rise due to Nassau’s decreasing use of recurring revenue sources and greater dependency on expenditure savings that count difficult-to-achieve labor concessions. The rating agency revised its outlook on the county’s Aa3 rating to negative from stable in June. Standard & Poor’s rates the county A-plus with a stable outlook and Fitch Ratings rates it AA-minus with a stable outlook.
Nassau has $2.9 billion of bonded debt outstanding, including NIFA and water and sewer district debt. The county has sold $1.01 billion of new-money bonds since 2000, with three-quarters of that amount issued since 2007, according to Thomson Reuters. NIFA, which no longer has authority to issue new-money bonds, sold $1.17 billion of new-money bonds from 2001 through 2005.
Orrick, Herrington & Sutcliffe LLP is bond counsel and Public Financial Management Inc. is financial adviser. Series C will be offered as $126.6 million of tax-exempts that will finance retirement incentives, judgments, and tax certiorari settlements. Bidders on $15.1 million of Series D bonds can submit bids for either tax-exempt or taxable Build America Bonds. The county plans to use the Series D bond proceeds for capital projects.
