Junk-Rated Village in New York Votes to Dissolve

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Mastic Beach, N.Y. residents voted Wednesday to dissolve their village government, a credit positive development for the struggling Long Island municipality, according to Moody's Investors Service.

The referendum passage transfers Mastic Beach's service responsibility to the Town of Brookhaven. Mastic Beach has $825,000 in outstanding general obligation bonds that were issued in 2013 for village hall and justice court facilities. Moody's rates the debt Ba1, with a negative outlook.

"The dissolution is credit positive for the village, which has struggled to maintain adequate services since its incorporation in August 2010," said Moody's analyst Heather Guss in a Nov. 18 report. "The village's credit profile has deteriorated rapidly over the past few years as expenditures have substantially outpaced revenue growth."

The final maturity on Mastic Beach's outstanding bonds is Nov. 15, 2028. Guss wrote that a special tax levied on properties within the former village will likely secure debt service. The debt represents a "very low" 0.1% of the full value of properties in the village, according to Guss.

Mastic Beach's population was 12,930, according to the 2010 U.S. Census. The dissolution was initiated by a citizen petition. The result gives the Mastic Beach Village Board of Trustees 180 days to develop and approve a plan for how and when the local government will terminate.

Guss noted that the property taxes are the village's second-largest revenue source at 25.8% of fiscal 2015 revenues, behind only garbage collection fees at 49.1%. The village's general fund balance and cash have been "severely strained" after three straight years' operating deficits, according to Guss. The village balanced its 2017 fiscal year budget with substantial spending cuts, which Guss said is "an unsustainable practice for future budgets."

Mastic Beach, which is in Suffolk County, became the 17th New York village to approve dissolution since 2010 and 56th since 1900. Under the New NY Government Reorganization and Citizen Empowerment Act, signed by Gov. Andrew Cuomo, the Town of Brookhaven will be entitled to a tax credit to reduce the tax levy and finance capital projects. Moody's rates Brookhaven bonds at Aa2 with a positive outlook.

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