Coronavirus lands Nassau County a negative outlook
Sharp revenue losses caused by the COVID-19 pandemic triggered a negative credit outlook to Long Island, New York’s Nassau County as it prepares to roll out a new fiscal plan to combat its massive budget hole.
Fitch Ratings revised Nassau’s outlook for the county’s A rating to negative from stable Friday citing an expected $385 million budget gap for the current fiscal year ending Dec. 31 and another $364 million deficit in 2021. The suburban county located just outside New York City is forecasting a 20% decline in sales tax collections triggered by the closure of many non-essential businesses since the pandemic began in March.
“The negative outlook reflects Fitch's concern that already the county's weak financial resilience will further erode during the pandemic-related economic downturn,” Fitch analyst Amy Laskey wrote in a report released Friday afternoon. “If the county either measurably increases its planned reliance on non-recurring sources to meet operating needs or is unable to eliminate their use as revenues recover from the effects of the coronavirus pandemic, Fitch will likely downgrade the rating.”
Nassau’s bond ratings are rated one notch higher by Moody’s Investors Service and S&P Global Ratings at A2 and A-plus, respectively. Both assign stable outlooks.
The Fitch outlook change came the same week Nassau County Executive Laura Curran scrapped a previous deficit-financing proposal that would have involved restructuring debt. The Democratic county executive had proposed refinancing outstanding bonds through the triple-A-rated Nassau Interim Finance Authority, the county’s longtime fiscal control board, for an estimated $285 million of interest savings over the next two years, but the Republican-controlled legislature was opposed to the borrowing approach.
Curran said last week she would unveil a new financial strategy that involves a one-year deferral on a $75 million debt payment for bonds issued in 2008 through NIFA.
“We are pleased that the administration now recognizes that the refinancing is not necessary to close the budget gap in 2020,” Nassau County Legislature Presiding Officer Richard Nicolello, R-New Hyde Park, said in a statement. “We will review the full proposal by the administration and will work to achieve responsible and effective solutions to the county’s budget issues without burdening Nassau’s taxpayers.”
Curran has also proposed using a $112 million surplus from 2019 and $103 million of federal CARES Act funding to help plug the 2020 budget gap. She has been pressing the U.S. Congress to approve a new federal relief bill that provides revenue recovery for state and local governments.
Prior to the COVID-19 outbreak, Nassau achieved a $130 million surplus in 2019, according to Fitch. Curran is seeking an avenue to address this year’s deficit before she unveils her 2021 budget proposal in September.
“The COVID-19 pandemic has devastated the County’s finances,” said Nassau Deputy County Executive of Finance Raymond Orlando said in a statement. “We are taking aggressive actions to address the unprecedented budget gap of almost $400 million this year, and we are calling for federal aid to support the County during the pandemic.
NIFA, which was formed in 2000, has $411 million of outstanding county debt that is scheduled to be paid off in 2025. Since 2011, Nassau had been under a NIFA control period where it needs approval from the public benefit corporation for all county budgets and borrowing.
The NIFA board of directors hired Goldman Sachs in June to lead a potential restructuring effort.
“We plan to work with the county throughout the remainder of 2020 and beyond in any way that we can,” NIFA chairman Adam Barsky said in a statement. “While we are supportive of any efforts the County is making to secure additional funding from Washington, we are steadfast in our commitment to find continued paths toward a more sustainable financial future.”