Nassau County, N.Y., is planning to issue up to $192 million of general obligation bonds to pay for property tax refunds and other settlements — with or without approval from its control board, the Nassau County Interim Finance Authority.
NIFA, which has the power to approve or disapprove the Long Island county’s borrowings, has not approved the bonds, but county officials say they already have previous authorization.
The issue was taken to the state last week when Republicans in the New York Senate introduced legislation that would allow the county to issue bonds authorized by ordinances approved before the authority’s declaration of a control period in January 2011.
Tim Sullivan, Nassau’s deputy executive for finance, said the county has received an opinion from outside bond counsel that the previous authorizations still exist.
The county would issue up to $192 million of GO bonds in a competitive offering to pay for about $43 million of tax certiorari payments, and additional payments for other settlements, Sullivan said.
Nassau is the only county in New York required to fund successful tax certiorari claims for underlying school districts, towns and special districts. While the county Legislature voted to eliminate this guarantee, the change does not take effect until 2013 and is being challenged in court by municipalities within the county.
NIFA director George Marlin said if the legislation for what he calls “one-shot borrowing” is approved, consequences will be profound, including a lowered credit rating.
“It will make a sham not only of home-rule government but also make a mockery of the NIFA control board, which was specifically created to prevent such shenanigans,” Marlin wrote in an op-ed piece for the New York Post.
He said that circumventing NIFA would undermine the effectiveness of control boards throughout the state and would force rating agencies to reevaluate the credit quality of affected municipalities.
“The bond market will take notice: Nassau’s credit rating will likely drop, increasing its borrowing costs in the foreseeable future,” he said.
When asked if bypassing a control board’s disapproval would affect a municipality’s rating, Moody’s Investors Service analyst, Geordie Thompson said it depends on the situation. Regarding Nassau specifically, he said he could not comment on legislation that is pending.
Analyst Robert Weber added that they are continuing to monitor the situation.
Amy Laskey, an analyst at Fitch Ratings, also said it would be too speculative to forecast what the implications on the rating might be, though she noted that Fitch has included in its reports the rocky relationship between NIFA and the county.
“Fitch believes NIFA’s oversight has had some positive effects on the county’s financial operations … but has added a layer of complexity to decision-making,” the last report said.
The report also said that inability to issue the debt for tax refunds could result in the recognition of an additional $43 million in 2011 expenditures, further reducing the general fund balance.
Moody’s, in recent reports, has warned that failure to receive approval for borrowings could put significant pressure on the county’s financial position.
The agency currently rates Nassau County’s GOs A1 with a negative outlook. Fitch and Standard & Poor’s assign equivalent A-plus ratings.
