Improved reserves return an Oyster Bay, N.Y. rating to investment grade
Enhanced budgeting and fiscal monitoring boosted New York State’s fourth largest township out of junk status.
S&P Global Ratings upgraded the Town of Oyster Bay one notch to BBB-minus, the lowest investment grade rating, and assigned a stable outlook.
S&P cited steps taken in late 2016 to tackle negative reserve levels that included an 11.5% property tax increase which generated $24 million in recurring revenue.
S&P also highlighted temporary salary cuts for this year and 2018 implemented by former Town Supervisor John Venditto, who resigned in January 2017 two and a half months after he was indicted on separate federal corruption charges. Venditto was replaced by Joseph Saladino, a former Republican state assemblyman who was appointed to the town supervisor post in February 2017 and won a full term in November.
"The upgrade reflects the steps the town has taken to stabilize liquidity, restore structural balance in its main operating funds and begin replenishing its accumulated negative reserve balance," said S&P credit analyst Victor Medeiros. "Stronger revenue and expenditure assumptions, coupled with a roll-back of union salaries, savings from attrition and retirement, and a substantial tax levy increase, have aligned recurring revenues and expenditures, eliminating what was a persistent multiyear budget gap."
Venditto and Oyster Bay are facing a lawsuit brought by the Securities and Exchange Commission last November alleging that the former town supervisor defrauded municipal bond investors related to the disclosure of loan guarantees totaling $20 million for a concessionaire. S&P said it is monitoring the lawsuit, but does not “believe the town's market access is currently constrained or restricted.”
Moody’s Investors Service rates Oyster Bay’s debt at Baa3, its lowest investment grade rating. A December Moody’s report said the new SEC charges could be a credit negative with a “limited” short-term impact since the suit will take a lengthy period to play out in court. It maintained the Baa3 rating in connection with an $81 million refunding deal slated to price this week.
“My administration put a stop to the past practice of endlessly bo rrowing against the future and paid off $84 million in 2017,” said Saladino in a statement. “We will continue to improve our finances and pay down another $50 million in debt this year.”
Oyster Bay officials are projecting a general fund surplus of $19 million based on preliminary 2017 fiscal year results, which Medeiros said would reduce the town’s accumulated deficit to $20.9 million. Medeiros noted that the surplus is the town’s first positive result on a recurring basis in the last 12 years.
“It’s hard to say that they are out of the woods with an SEC case still looming,” said Matt Fabian, a partner at Municipal Market Analytics. “This report does however allow bondholders to understand that there is no immediate downside from the case in S&P’s opinion.”
S&P also credited Oyster Bay with reducing its debt burden. The rating agency estimates the town’s debt at $747 million, which is $45 million less than 2016. This total comprises an estimated $158 million of outstanding bond anticipation notes, which Medeiros said the town will likely structure as long-term fixed rate debt over the next several years.