Reserves and liquidity boost Hempstead, N.Y., rating
Growing reserves and liquidity gave America’s most populous township its second rating upgrade in less than five months.
Moody’s Investors Service boosted the Town of Hempstead, New York one notch to Aa2 from Aa3 with a positive outlook last week citing a commitment to achieving healthy fund balances. The new Moody’s mark is one notch above S&P Global Ratings, which raised Hempstead’s debt one notch in late June to AA-minus from A-plus after three years of budget surpluses.
“The upgrade of the issuer ratings to Aa2 reflects a significantly improved financial position that will likely continue to improve as management works to replenish fund balance in compliance with the town's fund balance policy,” wrote Moody’s analyst Robert Weber. “We anticipate that over the next two years the town will replenish its financial reserves to a level consistent with a higher rating.”
Past budget pressures led to Hempstead receiving one-notch downgrades by Moody's in 2015 and 2017. The Long Island municipality of 766,697 was cut three notches by S&P in March 2015 after it used reserves to balance budgets and faced soaring education costs tied to a $22 million settlement for resident tuition payment obligations at Manhattan’s Fashion Institute of Technology.
Weber said town officials are projecting a $26.9 million fund balance by the end of the 2018 fiscal year after originally budgeting for $21 million of reserves. The town has budgeted $8.4 million for its 2019 fiscal year budget.
"I'm delighted that Moody’s has recognized my administration’s conservative fiscal approach with an upgrade," Hempstead Town Supervisor Laura Gillen said in a statement.
Moody’s credited Hempstead with adding $16 million to its reserves during the 2017 fiscal year thanks largely to keeping 70 positions vacant with savings later achieved by backfilling the jobs at lower average salaries than the departed employees. Moody’s did criticize the town for issuing bonds that same year to cover around $8 million in separation payments for retired employees.
Moody’s also factored in Hempstead’s large wealthy tax base along with future revenue growth expected from large-scale redevelopment projects for the planned new arena housing the National Hockey League’s New York Islanders at Belmont Park and renovations at NYCB Live’s Nassau Coliseum. Hempstead, just east of New York City, encompasses 22 villages and 37 hamlets.
Hempstead’s debt burden is expected remain “minimal” with only $50.5 million of new borrowing planned for 2019 in the town’s five-year capital project plan. The town issued roughly $128 million of new debt this year with more than half of the bonds ($72 million) earmarked for settling litigation. Town officials said around 70% of the $72.9 million of new debt will be reimbursed by Nassau County, according to Moody’s.