Nassau County refinancing plan faces legislative roadblock
A debt restructuring proposal pitched by Nassau County Executive Laura Curran to combat a massive deficit caused by the coronavirus pandemic faces stiff opposition from the Republican-controlled legislature.
Curran requires legislative approval for the Nassau Interim Finance Authority, the county’s longtime fiscal control board, to refinance existing debt over the next two years to achieve an estimated $285 million of interest savings. Bonding assistance from triple-A-rated NIFA is crucial for the large suburban county, she said, to avoid “less advantageous” short-term borrowing options that would carry higher interest rates.
The Democrat county executive is pursuing the NIFA refinancing as part of a multi-year financial plan to close a projected $749 million deficit through December 2021. Curran wants to address the $364 million estimated budget gap for next year, partly with the refinancing, before she unveils her 2021 spending plan proposal in September.
NIFA hired Goldman Sachs last month to lead a potential restructuring effort.
Nassau County Legislature Presiding Officer Richard Nicolello, R-New Hyde Park, and other Republican legislators are concerned about extending the life of NIFA’s debt through a refinancing. NIFA, which began in 2000, has $411 million of outstanding county debt slated to be paid off in 2025, at which time the agency would cease to exist.
“The County Executive must go back to the drawing board and come up with better ideas," Nicolello said in a statement. . "The County Executive’s plan to have NIFA borrow money to fill a budget hole will saddle our children and grandchildren with debt and the expense for maintaining the NIFA bureaucracy."
Nicolello spokesman Chris Boyle said no legislation regarding the refinancing has been filed yet. The presiding officer has said the county should hold off on any financial decisions until it determines whether it will receive more federal funding from a new stimulus package.
Curran spokesman Mike Fricchione said there is no timetable to introduce the legislation, but stressed that approving a refinancing plan this summer is important for planning next year's budget.
Curran's proposal would involve refinancing a combination of outstanding county and NIFA debt to achieve an estimated $210 million of debt savings toward next year’s budget. NIFA would also refinance its own debt to net around $75 million of savings for current 2020 fiscal year that ends Dec. 31.
Any NIFA refinancing of outstanding county debt requires approval from the legislature, which is comprised of 10 Republicans and nine Democrats. A restructuring of NIFA debt would only need to be approved by NIFA’s board of directors.
Without a refinancing the county would need to formulate major cuts or create new revenue streams, according to NIFA Chairman Adam Barsky. A restructuring would create net present value savings of 5% to 7% for Nassau, he said.
“This is about refinancing existing debt in a way that provides relief needed for the county,” Barsky said. “It would restructure it so that there are more level debt service payments.”
Since 2011, Nassau has required NIFA board approval of county budgets and borrowing. Barsky stressed Nassau could still exit the control period even if its existing NIFA debt gets extended by the refinancing, but limited oversight powers would remain.
Curran stressed in a letter this month to Nicolello that extending NIFA’s oversight of the county should not factor into whether to approve the refinancing. She noted NIFA can continue under state law until 2051, regardless of whether it has outstanding debt.
“Every dollar saved by utilizing NIFA can be applied to avoid cuts to vital services and the county workforce," Curran wrote. "These benefits outweigh the fact that NIFA’s life would be extended."
Curran has proposed other measures along with the debt refinancing to tackle near-term budget challenges, including utilizing a $112 million surplus from 2019 and $103 million of federal CARES Act funding for pandemic expenses.
Nassau’s general obligation debt is rated A-plus by S&P Global Ratings, A2 by Moody’s Investors Service and A by Fitch Ratings.
Fitch analyst Shannon McCue said Nassau’s large reliance on sales tax revenues has been a big factor in the county’s financial struggles since the pandemic forced non-essential businesses to close in March. While the refinancing would help provide near-term budgetary savings, she said, the county and NIFA will be challenged to adopt sound fiscal practices in the next couple of years as a result of the virus-induced recession.
“NIFA has taken an active role in the county’s finances, rejecting the county's financial plans when it believes revenue estimates are optimistic or spending measures insufficient,” McCue said. “However, NIFA's ability to instill conservatism into the county's financial practices appears limited given the county’s challenges in maintaining balanced financial operations.”