Nassau County, N.Y., officials are pushing for state legislation that would allow it to refund bonds issued by the Nassau County Interim Finance Authority. While the county's immediate concern is taking out $719 million of auction-rate securities, the ultimate goal is to get rid of NIFA, said Thomas Stokes, deputy county executive for management, budget, and finance.
"We believe its time for Nassau County to take control of its own destiny and refund the NIFA bonds," Stokes said. "We believe we can price just as well if not better in the market" than NIFA.
The county's initial plan would be to sell revenue anticipation notes to purchase NIFA auction-rate securities that are costing a $400,000 a week in additional debt service due to higher interest rate resets, Stokes said. The county is waiting for the Securities and Exchange Commission to offer guidance on whether or not such a scenario would be permitted. Refundings would come later. The bill would amend a state local finance law that prevents the county from refunding swaps. About $600 million of NIFA's ARS have interest-rate swaps.
NIFA was created by the state Legislature in 2000 when the county faced a fiscal crisis and Standard & Poor's had downgraded the county to BBB-minus from A-minus. NIFA gave the county access to the debt market and sold $2.51 billion of bonds between 2000 and 2005, according to Thomson Financial data. The county returned to the market last year and has sold $200 million of bonds since 2007, according to Thomson.
"After three years of [NIFA] not taking action in the market and now that we're in the A ratings with all three of the major rating agencies," Stokes said. "We think it's the right thing given the county's financial turnaround."
Standard & Poor's rates Nassau A with stable outlook, a notch higher than it did before the county's fiscal crisis, and assigns its AA-plus rating to NIFA. The agency cited the county's diverse and affluent local economy, proximity to New York City, improved financial management and performance, and institutionalized financial reforms and debt management policies as positives in a credit report released in January. Credit limitations included below-average general fund reserve levels, exposure to some uncontrollable costs, and an above-average debt burden.
In 2000, the creation of NIFA was a key reason why the ratings agency didn't downgrade the county to junk status, according to a Bond Buyer article written at the time.
"NIFA is supposed to be on as oversight through the life of the bonds and from a credit perspective that's seen as a credit positive [for Nassau County]," Standard & Poor's analyst Eden Perry said.
Fitch Ratings assigns its A-plus rating the county and its AA-plus rating to NIFA. Moody's Investors Service rates the county A2 and NIFA Aa2.
Sen. Dean Skelos, R-Rockville Center, plans to meet this week with officials from both Nassau County and NIFA to discuss the county's proposal and hear both sides, the senator's spokesman said yesterday.
NIFA staff said the authority has its own plan to refund the auction rate securities and has secured liquidity to convert to variable-rate demand obligations.
"NIFA has a fiduciary responsibility to expeditiously remedy the ARS problem through a refunding, we are working cooperatively with the county as we move forward with this process," said NIFA executive director Evan Cohen. Cohen referred more detailed questions to NIFA chairman Ronald Stack who was unavailable for comment over the last week.
Under the legislation that created it, NIFA can no longer issue new money bonds but it can refund its own debt and until the end of this year the county must submit its multi-year plan for approval. NIFA will be in existence as long as its debt is outstanding, and as long as it exists it can initiate a control period under certain conditions which would give it oversight over the county's finances.
The Municipal Assistance Corp., for example, which was created during New York City's fiscal crisis in the 1970s to allow the city access to the credit market, would have gone out of existence this year had not some of its remaining debt been refunded in 2003, thus extending its life until 2033.
While NIFA has done an "extremely admirable job" the county now has institutionalized policies that require financial reporting and four-year financial plans that make NIFA's role unnecessary, Stokes said. If the proposed legislation were passed, Nassau would look to refund NIFA debt as market conditions allowed, a process that could take years, Stokes said.
Assemblywoman Earlene Hooper, D-Hempstead, would sponsor the bill the county is seeking to enable it to refund NIFA debt.
"The county has demonstrated its ability address the problems that they inherited and now they're looking to become responsible and this refinancing of the debt will lead to that goal," Hooper said.
Nassau County Treasurer Jeff Nogid said he could not provide a copy of the proposed legislation because it was subject to change until it's introduced in the Legislature.