Westchester County’s triple-A rating may be at risk if the large New York suburban municipality fails to establish more permanent revenue streams, according to S&P Global Ratings.
S&P revised Westchester’s outlook to negative from stable Tuesday ahead of a planned $206 million bond sale Tuesday while affirming the large suburban county’s long-term AAA rating on $1 billion of debt. The county’s use of New York State's pension deferral program and proposing a 2018 executive budget that assumes revenue from a plan to privatize its municipal-owned airport before a required supermajority legislative approval signals “a political aversion” for permanent revenue measures or cutting expenditures, according to S&P credit analyst Nora Wittstruck.
“The outlook revision reflects our view that there is a one-in-three chance that we may lower the long-term ratings over the two-year outlook period if actions to align revenue and expenditures without reliance on one-time cash infusions are unsuccessful while officials address risks to budgetary performance and financial flexibility,” said Wittstruck in her report.
Westchester is planning to sell $188.7 million of general obligation tax-exempt bonds and $17.3 million in federally taxable bonds on Dec. 4 to address capital improvement projects. The transaction was rated Aa1 by Moody’s Investors Service and AAA by Fitch Ratings, with both agencies assigning stable outlooks.
Wittstruck noted budgetary risks from departing County Executive Rob Astorino’s $1.8 billion 2018 budget proposal that includes $30 million from a $595 million airport privatization proposal that needs approval from 12 of the 17 county legislators. Astorino, who lost his re-election bid to Democratic State Sen. George Latimer, said shortly after Election Day that Macquarie’s bid would net the county just over $300 million upfront as part of a 40-year lease.
Despite future potential fiscal pressures, S&P views Westchester’s current budgetary flexibility as strong with a $140 million available fund balance in the 2016 fiscal year that equates to 8.3% of operating expenditures. Wittstruck said that while the county has projected using some fund balance in 2017 that reserves would still remain above its informal threshold of 8% of expenditures.
“Over the longer term, should the aforementioned risks to the fiscal 2018 budget materially compromise the county's flexibility--either through large labor union settlement payments or budget gaps resulting from the legislature not approving the airport privatization lease--could lead us to modify our view of the county's strong reserve position,” said Wittstruck. “Furthermore, we would anticipate that the county would implement sustainable revenue sources to ensure sufficient flexibility to insulate its financial position from disruptions related to potential tax reform efforts or economic downturns.”