S&P Global Ratings has revised the outlook on Nassau County, N.Y.'s general obligation (GO) debt to stable from negative. S&P assigned their 'A+' long-term rating to the county's series 2017B GO bonds and their 'SP-1+' short-term rating to its series 2017A GO bond anticipation notes (BANs), federally taxable. S&P also affirmed their 'A+' rating on the county's outstanding GO debt and their 'A' long-term rating on the Nassau Regional Off-Track Betting Corp.'s 2005 revenue bonds, reflecting appropriation risk.
"The outlook revision to stable reflects the county's mproved financial position," said S&P Global Ratings credit analyst Timothy Little. Over the last two years, Nassau County has been able to improve its budgetary flexibility and cash management practices, and expects it will no longer have to issue debt to fund tax appeals. For fiscal 2016, preliminary estimates by the County Comptroller's Office report a budgetary surplus of $39.6 million net of transfers to various reserve funds for litigation, bonded indebtedness, and accrued employee benefits.
"Despite these accomplishments, the county continues to face long-term pressures," added Mr. Little. "Budgetary flexibility is expected to remain thin with the county's intended use of a portion of the 2016 surplus for tax appeals in fiscal 2017 and represents use of a one-time revenue source for a recurring expense. In addition, the continued deferral of pension expense–now totaling $232.6 million as of 2017–further underscores the county's continuing budget challenges."
The county's faith and credit GO pledge secures the GO bonds, including the statutory authorization to levy ad valorem taxes on all real property in the county, subject to the provisions of the 2011 tax levy limitation law, which imposes additional procedural requirements on the ability of municipalities to increase the real property tax levy each year. The series 2017A proceeds will finance various capital improvements throughout the county and refinance in part, the county's series 2016A BANs maturing June 14, 2017.
The 'SP-1+' rating reflects their assessment of the county's low market-risk profile, indicating their view that there is a low likelihood that the market liquidity of the obligor's debt would be weaker than that suggested by the 'A+' long-term rating. The 2017A BANs are being issued to finance sewer system improvements.
Nassau County, with an estimated population of 1.4 million, is on Long Island immediately east of New York City.
"The stable outlook reflects our opinion of Nassau County's deep and diverse economy and progress to date on its plans for restoring structural balance and improving budgetary flexibility," added Mr. Little. We do not expect to change our rating during the two-year outlook period. However, we believe that the county continues to face substantial budgetary pressure, including its reliance on economically sensitive sales tax revenue, rising employee costs, and significant pension and other postemployment benefit costs.
