WASHINGTON — The credit quality for most municipal issuers who were affected by Hurricane Sandy is likely to remain unchanged, despite late debt service payments by four of them, according to a new report by Moody’s Investors Service.
The rating agency published the 29-page report late Tuesday, analyzing the impact of a large number of entities that were affected by the damage from Superstorm Sandy.
The storm, which battered the entire eastern seaboard in late October, is estimated to have caused upwards of $50 billion in economic damages.
“We only expect a handful of possible rating actions directly related to the hurricane,” wrote Robert Kurtter, managing director of public finance with Moody’s.
The damage many issuers experienced from the storm could lead to temporary lower cash balances or increased debt burdens but is unlikely to fundamentally threaten long-term credit quality, the report said.
In the short-term, Moody’s expects that those state and local governments hurt by the storm will face operational disruptions and the need for large, up-front unbudgeted expenditures. Some issuers face the risk of unscheduled cash outflows with a lengthy or uncertain timetable for reimbursement, it said.
Near-term liquidity demands appear to be manageable for most issuers but some may need to borrow money to supplement cash flow, the agency said.
Issuers also face the obstacle of timely debt service. Jersey City, N.J., the Borough of Ship Bottom, N.J., the Long Beach City School District, N.Y., and the Hackensack School District, N.J., were all late on their Nov. 1 debt service payments, Moody’s said.
Finally, issuers face the challenge of collecting taxes and the possibility of tax base erosion as owners of damaged or destroyed properties seek to lower taxable assessments.
Following natural disasters, the Federal Emergency Management Agency reimburse state and local governments for the majority of their costs to clear debris, provide emergency services and repair or rebuild infrastructure. Typically, federal reimbursements are at least 75% of the costs incurred by the affected governments.
FEMA has announced that federal reimbursement rate for emergency response and for transportation assistance will be 100% for the period between Oct. 31 and Nov. 9, the first 10 days after the storm hit.
However, if the presumed level of disaster funding from FEMA fails to materialize for costs incurred during and after the storm, Moody’s expects a greater negative impact on credit across the sector.
The two states most affected by the hurricane, New Jersey and New York, continue to assess the damage to public infrastructure and estimate near-term tax revenue losses.
Earlier this week Mayor Michael Bloomberg and other New York City officials announced a $500 million emergency plan to make critical repairs to public schools and hospitals damaged by Hurricane Sandy. The storm left the worst damage ever recorded in the 108-year history of the New York metropolitan area’s combined transit, commuter, bridge and tunnel system operated by the Metropolitan Transportation Authority, Moody’s said.