Nassau County, N.Y.'s decision to speed up a commitment to stop borrowing to pay taxpayer refunds is a credit positive, according to Moody's Investors Service.
The Long Island county announced Feb. 15 that it would stop issuing debt to fund tax refunds for taxpayers who successfully challenge their property tax assessments in fiscal 2017, a year ahead of schedule. Moody's analyst Cristin Jacoby noted in a Feb. 23 report that the move will eliminate a source of the county's "historical reliance" on issuing bonds to fund operations. The county had planned to end borrowing practice in fiscal 2018, but expedited the move after netting a larger-than-expected reported budget surplus of $80 million for fiscal 2016.
"Though the $60 million planned issuance in fiscal 2017 would have been small relative to the county's $2.9 billion operating budget, the elimination demonstrates a willingness to work toward halting the use of non-recurring revenue," said Jacoby in the report.
Jacoby noted that Nassau has struggled to balance recurring revenues with expenditures, pointing out that the fiscal 2016 surplus was achieved in part through $60 million of debt issuance for owed tax refund payments and $41 million of pension contribution deferrals under the state's "amortization" program. The county also discontinued bonding for employee termination payments last year, but the 2017 budget includes $29 million in pension contribution deferrals.
Nassau is planning to pay future tax refund costs primarily through the county's newly formed disputed assessment fund, which is effective for the 2017 tax roll. A projected amount of disputed property taxes will be paid into the fund for 2017 commercial tax appeals and future appeals. The county of is rated A2 by Moody's.
"In recent years, the county has also developed a new system for handling residential tax appeals, where most claims are negotiated before the tax roll is finalized," said Jacoby. "The system has contributed to a drop in outstanding residential tax appeals."
Jacoby cautioned that Nassau's projected $80 million surplus for fiscal 2016 when using generally accepted accounting practices that don't factor in proceeds from borrowing as operating revenues is based on internal reports and an audit has not been finalized. She said the county projects the audit will show a minor addition to available reserves, with $16.9 million added for future employee termination payments and $3.6 million to a bonded indebtedness fund to pay for debt service. Any added fund balance would be a credit positive for the county, which Jacoby said has weak GAAP-based available reserve levels of 2.9% of operating revenues compared to other A2-rated counties.
