Standard & Poor's last week downgraded West New York, N.J., to BBB-minus from BBB and placed the credit on negative watch as officials work to secure New Jersey's guaranty on a potential $11 million June bond sale.
The rating change reflects the city's limited liquidity and a $64 million budget for fiscal 2008, which ends June 30, that the state still has yet to approve. The current fiscal plan relies upon an upcoming $7.8 million sale of a public works building that West New York officials anticipate will close in the next 30 to 45 days.
Once the city has the property-sale proceeds in place to balance the fiscal 2008 budget, the state's Local Finance Board, a division of the Department of Community Affairs, would sign off on the current budget, according to Nick Goldsack, West New York's business administrator.
Yet Standard & Poor's is keeping tabs on the real estate deal, as balancing the current budget depends upon the transaction.
"If the building sale is not completed, the town will face significant fiscal challenges, which may warrant further downgrades," Standard & Poor's analyst Robin Prunty said in a press release.
Goldsack said he is confident the city will close the real estate deal, after city officials rewrote the transaction to comply with a 2007 Rumana vs. Passaic County court decision that questioned the legality of how the Local Finance Board approves sale-leaseback arrangements in the state.
"I think that we're making tremendous [progress] as far as getting ourselves out of that situation," Goldsack said.
West New York has roughly $25 million of outstanding debt. Fitch Ratings and Moody's Investors Service do not rate the city. This is the second downgrade for the municipality in the past year. In March 2007, Standard & Poor's said it lowered its rating on West New York to BBB from BBB-plus "due to structural imbalance in the town's budget and the town's reliance on onetime revenues and reserves to finance ongoing operations."
In addition to the postponed property sale, the city was forced to absorb deferred health care and workman's compensation costs of about $4.8 million in this fiscal year that were not paid last year. To help take on those additional expenses, West New York sold $7 million of tax anticipation notes this year. The notes mature later this year
The town is seeking the state's guaranty for $11 million of long-term debt the city anticipates selling in June to help fund a health reserve fund. The Local Finance Board is scheduled to vote at its May 14 meeting whether to secure the debt with New Jersey's own guaranty, which would give the bonds the state's double-A credit rating. Moody's Investors Service rates the state Aa3. Fitch and Standard & Poor's rate New Jersey AA-minus and AA, respectively.
West New York's ability to sell state-qualified bonds could help the municipality, located across from Manhattan over the Hudson River, as it aims to develop its waterfront and cut its operating budget. Goldsack declined to give the potential size of the fiscal 2009 budget, but said officials will begin a plan of "zero-based budgeting" where officials will have to justify every dollar spent in the fiscal plan, a methodology that he said would generate a smaller budget than the current $64 million fiscal plan.
"We never really had an opportunity to look at the normal operating costs," Goldsack said.
Along with conservative budgeting, the city anticipates payment in lieu of taxes revenues to increase by more than $3 million next year as West New York is in discussions with developers to develop retail and housing on its waterfront.
Mayor Silverio Vega and the city commissioners "are determined to make sure that we stabilize the taxes in this town and move forward and bve progressive," Goldman said.