Town of Hempstead, N.Y., upgraded on strength of surplus from CARES Act
Healthy reserve levels that were further strengthened by federal COVID-19 funding garnered a credit upgrade for America’s largest township.
Moody’s Investors Service upgraded the town of Hempstead, N.Y.’s general obligation bonds one notch to Aa1 from Aa2 citing strong fiscal management the past few years and through the pandemic, bolstered by $133 million of CARES Act funding. The large Long Island municipality with an estimated population of 768,057 also had its credit outlook revised to positive from stable.
“The upgrade to Aa1 reflects a significantly improved financial position driven by conservative budgeting over the past five years,” Moody’s analyst Robert Weber wrote in a Dec. 18 report. “The financial position was further benefited from federal funding during the pandemic.”
The new higher Moody’s rating is two notches above S&P Global Ratings, which rates Hempstead GOs at AA-minus with a positive outlook. S&P affirmed the rating in July 2019 prior to a $73 million bond deal.
Weber noted that CARES Act funding enabled Hempstead to finish the 2020 fiscal year with a roughly $68 million surplus. Hempstead was the only township in the nation with a large enough population to quality for this federal aid.
Hempstead Comptroller John Mastromarino said the town was financially well prepared entering the pandemic with a $132 million fund balance at the close of the 2019 fiscal year. The town will end 2020 with $201 million in reserves thanks to using $70 million of the federal aid to cover payroll expenses, he said.
“We are bringing to the table a conservative budgeting process,” Mastromarino said. “We are in excellent financial shape.”
The town balanced its 2021 budget using $20 million from its fund balance that is not connected to the CARES funding. Weber said the budget, which did not raise taxes, is “conservative” and Hempstead should be able to replenish reserves if the economy rebounds.
Mastromarino said Hempstead is planning to borrow about $120 million in spring 2021 to address capital projects and refinance past debt. The town has roughly $390 million of bonded debt outstanding, according to Mastromarino, with debt service making up about 13% of the total operating budget. He said about 90% of the debt is on schedule to be paid off within 10 to 13 years.
The credit upgrade is expected to enable Hempstead to save $1 million interest payments for its upcoming bond sale, Mastromarino said.
Hempstead has benefited recently from a spike in home sales during the pandemic as a result of nearby New York City residents opting to relocate to suburban areas, according to Weber. The town also has potential for future tax revenue growth from planned developments at the New York Islanders’ new arena at Belmont Park and around the Nassau Coliseum property in Uniondale, Weber said.
“Earning among the highest credit ratings of any local government on Long Island is a major accomplishment,” Hempstead Town Supervisor Don Clavin said in a statement.