Suffolk County, N.Y., plans bond offering amid budget challenges
Long Island’s Suffolk County is readying a nearly $300 million bond transaction even as it confronts a giant revenue shortfall.
Suffolk is scheduled to issue $290 million of debt the third week of October to finance capital projects and seek budgetary savings. New York State’s fourth-most-populous county is facing an estimated $320 million budget deficit for the current 2020 fiscal year and County Executive Steve Bellone has delayed release of his proposed 2021 spending plan in hopes of additional aid arriving to prevent massive cuts.
“Every deal that we do is important, but this one in particular is very much needed,” said Suffolk Comptroller John M. Kennedy. “Our primary revenue streams are drying up all over the place.”
The borrowing will feature a competitive deal of $105 million in Series A public improvement serial bonds to redeem outstanding bond anticipation notes for debt service savings and to finance capital projects. The county will also sell $61.1 million of Series B tax-exempt refunding serial bonds and $124 million of Series C taxable refunding serial bonds as part of a negotiated offering led by Jefferies that Kennedy says would achieve an estimated $12 million in interest savings.
Capital Markets Advisors is financial advisor for both the competitive and negotiated offerings. Harris Beach is bond counsel.
Fitch Ratings and S&P Global Ratings rate the bonds at BBB-plus with negative outlooks. Suffolk will have about $1.5 billion of GO debt outstanding following the transaction, according to S&P.
Fitch analyst Shannon McCue said the negative outlook reflects the county’s persistent budget deficit struggles that have been compounded by the COVID-19 pandemic. She said the $320 million revenue shortfall this year was largely driven by an estimated sales tax decline of $222 million, or 11.2%, from 2019 sales tax collections, stemming from stay-at-home orders at the onset of the pandemic. The county lacked unrestricted reserves to address the fiscal pressures, according to McCue.
“The current pandemic related-conditions will really limit [the county's] financial resilience in the coming years,” she said. “In absence of federal funding we think that the budget will look very different than it did last year and that they will make a lot of changes on the spending side.”
Suffolk received $257.8 million in federal CARES Act funding, but Bellone has said more relief is needed from Washington to offset revenue losses and prevent large-scale departmental cuts. The county is also facing a possible 20% loss in state aid absent another stimulus package from Congress.
S&P credit analyst Nora Wittstruck noted Suffolk entered the pandemic with “very weak budgetary flexibility” since the county’s fund balance was at negative 4.4% of operating expenditure at the end of 2019. The county has spent about $180 million of its CARES Act funding and is required to spend the remaining $76 million by the end of the year, she added.
Bellone delayed release of his fiscal 2021 budget proposal, which he had planned to announce last Friday, in hopes of receiving further clarity whether cuts could be avoided from new federal funding. The press office for Bellone, a Democrat, did not immediately respond for comment on when he plans to release his budget plan.
Kennedy, a Republican who unsuccessfully challenged Bellone for county executive last year, said it is important that a recommended operating budget be unveiled as soon as possible, and that it prepares for a worst-case scenario of no additional federal funding. Senate Majority Leader Mitch McConnell, R-Ky., sent the body home until Oct. 16 and, Kennedy noted, the Suffolk County legislature is slated to vote on a budget in early November.
“We can’t wait that long,” he said. “Unfortunately absent federal aid it is going to be an ugly, ugly budget.”