Officials from distressed municipalities discussed their financial situations at The Bond Buyer’s Tri-State Area Public Finance Conference on Monday.
How did they get into these situations? It all comes down to the numbers.
“The math just doesn’t work. You have flat revenues and ever-increasing expenses and something’s got to give,” said Michael Solomon, managing director at Ramirez & Co. He said that most local municipalities have not reached revenue levels they had before the financial crisis, yet their expenses have continued to increase, with salaries, benefits and pensions accountable for the majority of costs.
Timothy Sullivan, the deputy county executive for finance of Nassau County, N.Y., said that Solomon hit the nail on the head.
Starting in 2008 with a weakening economy, Nassau’s tax collections decreased while the costs of labor compensation, health insurance, pension and, unique to Nassau, tax certiorari continued to increase.
Nassau County, which has been under a financial control board since 2011, is rated A-plus by Fitch Ratings and Standard & Poor’s and A1 by Moody’s Investors Service.
To address its fiscal situation, Nassau has reduced its workforce, implemented a bus public-private partnership, approved legislation to charge not-for-profits for sewer services and consolidated police precincts. The oversight board also imposed a wage freeze which has saved the county around $30 million. The county also hopes to reduce its borrowing over the next few years and to move forward with plans to privatize its sewer systems.
On the opposite side of New York State, Monroe County is also struggling to recover from the financial crisis.
In 2008, the county ended the fiscal year with an unreserved general fund balance deficit of $10 million. Moody’s said in a report earlier this year that it still has weak financial reserves and depends on cash-flow borrowing to fund operations.
Moody’s rates the county A3, Standard & Poor’s rates it BBB-plus and Fitch rates it A-minus.
“Crisis brings the opportunity to right-size the ship,” said Scott Adair, director of finance for the county. “People realize that we need to do more with less.”
And that’s exactly what they have been able to do, he said. Currently in Monroe County, the employment rate is high, sales collections are up and property tax is relatively sound, he said.
Going forward, he plans to reduce the projected deficit, which is estimated at $48 million in 2013 and $58 million in 2014.
In New Jersey, Collingswood is another municipality labeled as “distressed,” though the mayor would say otherwise.
“I’m more distressed about the ratings process,” said James Maley, who heads the law firm Maley & Associates and has been mayor of Collingswood since 1996.
He said Moody’s made factual and analytical errors when it downgraded the city to Ba1 from A1 and that he has since been working to remedy these errors, but to no avail.
“This rating is like having a gigantic pimple on your nose. It doesn’t really affect what you do, how you operate, but it makes you look really bad,” Maley said.
In September 2011, Moody’s dropped the borough’s rating based on its belief that Collingswood would be “challenged to make payments within the next 30 days on its own notes and debt, given its substantial enterprise-related risk, narrow liquidity and uncertain market access.”
The Moody’s report also cited a loan of $8.5 million that the borough guaranteed and was maturing the following month.
Maley said the borough only guaranteed $4.5 million and pointed to what he calls Collingswood’s proven market access and proven redevelopment success.
Moody’s has continued to maintain its Ba1 rating, but revised the outlook to uncertain from possible downgrade in March this year.
