After seeing its bond rating slashed three-notches and facing the potential for another downgrade that would put it in junk territory, one of New York’s wealthiest counties is experiencing higher borrowing costs.
In a recent private placement of $10.5 million of bond anticipation notes, Rockland County saw its interest rates nearly double from last year. That came after Moody’s Investors Service last month cut the county to Baa3.
The county, located 15 miles northwest of Manhattan, sold 4% one-year Bans reoffered at 3.40%, priced by Roosevelt & Cross Inc. last week.
On Bans issued last August, the county paid an interest rate of less than 2.00%.
The notes were issued to redeem Bans maturing on June 7 that financed various projects, including highway equipment replacement, hospital beds, and a public safety communications system.
Orrick, Herrington & Sutcliffe LLP was bond counsel and Capital Markets Advisors LLC was financial advisor.
Rockland plans to issue more notes, bonds, and possibly deficiency bonds, in the next few months.
Steven Grogan, deputy budget director for Rockland County, said the county is planning a private placement of $35 million of revenue anticipation notes in the next few weeks to finance operational costs. The underwriters have not yet been selected.
Last year, it cost Rockland around 2% in interest rates to issue Rans.
Also planned is a $33 million sale of general improvement bonds to fund capital projects throughout the county in late June or early July.
Grogan said it’s important that the suburban government avoid any future cuts to its credit rating. “Any further downgrade may impact our ability to borrow and-or at possible higher interest costs,” he said.
After Moody’s dropped the county’s rating from A3 to Baa3 — the lowest investment-grade rating — it placed it on review for further downgrade.
The downgrade was based on what Moody’s calls a significant budget gap of more than $40 million in the county’s current year, placing heavy pressure on its financial operations and liquidity.
The county had a plan to close the gap, including an increase in sales and other taxes, but did not receive approval from the state.
Moody’s said Rockland’s rating could go down if the county fails to implement revenue enhancements and expenditure reductions, if the state does not approve or support actions to restore fiscal balance, and if the county finds it difficult to place upcoming note issuances.
“The county is working on removing its negative watch and a possible upgrade based on the contingency plan’s enactment,” Grogan said.
The contingency plan was unveiled last month and includes budget cuts and new revenues to help close Rockland’s budget gap.
So far, the county has imposed a 4% surcharge on energy sources and services that would generate an estimated $12 million per year.
The county has also received bids at a price higher than expected for the sale of two of its buildings.
“Our 2012 budget anticipated a sale price of $5.7 [million], but now with $8.2 [million] we will surpass budget by nearly $2.5 [million],” Grogan said.
In addition, County Executive C. Scott Vanderhoef announced last week that he is cutting his salary by 5%, saving the county $7,754.
The contingency plan also includes county layoffs that would provide $8.8 million in salary savings and would affect an estimated 150 employees. Out-of-county community college chargebacks would bring in $1.8 million.
Rockland currently reimburses community colleges outside of the county for the non-resident tuition of Rockland students who attend there. Under state education law, Rockland can charge back this cost to towns.
Grogan said that a slumping economy and a sluggish housing market have contributed to the current strained financial position.
Over the past years, the county has seen declines in several major economically sensitive revenue streams, primarily sales and mortgage tax revenues. To reduce its $95 million deficit, the county has sent a request to state lawmakers to issue $95 million of 20-year deficiency bonds.
The county hopes to receive an answer by June 21, the last day the New York Legislature will be in session.