Fiscal impact of COVID-19 drives Suffolk County, N.Y., downgrade
Economic storm clouds resulting from COVID-19 triggered a downgrade for Suffolk County, New York.
Fitch Ratings downgraded Suffolk general obligation bonds one notch to BBB-plus from A-minus with a negative outlook Friday citing a lack of reserves to withstand fiscal pressures.
New York State’s fourth-most-populous county has faced challenges with structural imbalanced budgets in recent years even befpre COVID-19 threatened future prospects of revenue growth, according to Fitch.
“Current economic conditions, triggered by the coronavirus pandemic, are expected to place significant additional pressure on the county's revenues and cash position in the near term,” Fitch analyst Shannon McCue wrote. “Given the absence of general fund reserves, the county is ill prepared for an economic downturn, much less the current economic dislocation due to the coronavirus pandemic.”
As of Monday afternoon, the Suffolk County health department officials reported 1,448 positive cases of COVID-19 with 14 confirmed deaths. The suburban Long Island county, along with other New York municipalities, are grappling with lost sales tax revenues after Gov. Andrew Cuomo shut down all non-essential businesses late last week to help fight the virus’s spread.
Suffolk’s 2020 adopted budget assumes a 3.7% increase in sales tax growth over 2019. McCue said that the county is not likely to “come close” to its budgeted sales tax assumptions following temporary closure of major shopping malls, restaurants and Jake’s 58 Hotel & Casino along with other economic pressures associated with COVId-19.
McCue noted that even a moderate economic downturn would challenge Suffolk in maintaining current service levels because of accumulated deficits and insufficient general fund reserves. While the county has found savings from consolidating departments, negotiating labor concessions and staff reductions, the “natural pace” of contractual workforce spending will likely remain above any revenue growth, according to McCue.
The new lower Fitch Rating is on par with Moody’s Investors Service and S&P Global Ratings. S&P lowered Suffolk notch on March 13 to BBB-plus from A-minus on March 13 and also cited a lack of reserve flexibility during the COVID-19 pandemic. Moody’s downgraded Suffolk one notch to Baa1 from A3 in September 2018 due to recurring operating deficits, deferred pension contributions and reliance on “significant” annual cash flow borrowing.
The latest Fitch downgrade occurred in advance of a $105 million revenue anticipation note sale Suffolk is planning on March 30. Fitch assigned an F2 rating for the RANs, which Suffolk typically issues twice a year to fund operations in anticipation of state and federal aid.
Fitch also downgraded $100 million of tax anticipation notes Suffolk sold in 2019 and $410 million of TANs slated for the next two years. The county usually sells TANs twice a year for current and delinquent property tax collections.
The press office for Suffolk County Executive Steve Bellone did not immediately respond for comment on the Fitch downgrade.