New York's Nassau County Borrows to Pay Property-Tax Refunds: Muni Credit
The Long Island county’s record of borrowing for such payments led the state to create an oversight board, the Nassau County Interim Finance Authority, a decade ago. In September, the panel said it opposed using debt to finance refunds. Nassau plans to sell $125 million in taxable Build America Bonds and tax-exempt securities tomorrow, its biggest long-term borrowing since August.
“I think the whole market is, and should be, concerned about selling debt to pay real-estate tax refunds,” said Anthony Shields, a principal in the public-finance department at Williams Capital Group in New York. “They already have the highest taxes in the country and can’t raise them any higher.”
The median annual property tax on homes in Nassau last year was $8,940, the second-highest among U.S. counties after Westchester County, also in New York, according to the Tax Foundation in Washington.
Citigroup Inc., which won today’s bidding for the issue, is offering yields of 4.2 percent on the $53 million in insured tax-exempts maturing in October 2025, about 0.71 percentage point above a comparable maturity Bloomberg Valuation index.
“They’re going to pay more than they did in August,” Fred Yosca, head of fixed-income trading at BNY Mellon Capital Markets LLC in New York, said yesterday.
On Nov. 29, more than $1 million of Nassau’s bonds due in October 2025 traded at 4.11 percent, or 0.58 percentage point higher than a Bloomberg index of top-rated AAA bonds. When the bonds sold Aug. 11, their 3.57 percent yield was 0.42 percentage point more than the index.
The August sale, which the county used to pay retirement incentives for workers, according to its budget director, included a 1.47 percent yield for debt due in October 2015 and 2.74 percent for October 2020.
Mangano prepared a budget for the year beginning Jan. 1 that avoids raising property taxes, relying instead on $100 million of cost cuts, $60 million of concessions by unions, and $80 million by eliminating its obligation to pay local governments for their property-tax refunds. The property tax legislation faces legal challenges, Moody’s Investors Service said in a Nov. 4 report.
Moody’s Cut Rating
Moody’s cut the county’s bond rating one grade to A1, its fifth highest, and said the outlook was negative. Standard & Poor’s rates the bonds A+, also fifth highest and Fitch Ratings assigned an AA- grade, fourth highest.
The county expects to borrow $364 million for 2011 and 2012 to pay for property tax refunds owed homeowners, according to the oversight group’s report. The borrowing would provide budget relief “but simultaneously create a long term expense for future taxpayers,” it said.
Still, there’s no reason to expect the oversight authority to declare control over the county’s finances, Budget Director Jeffrey Nogid and Comptroller George Maragos said in telephone interviews.
The county’s budget is set to be balanced this year, Maragos said, and next year’s plan also matches spending and revenue, he said. County officials have assured the authority of their intention to cut spending if needed, he said.
For NIFA to assume control, a deficit of at least 1 percent must exist or be “imminent”, Maragos said.
About $55 million of revenue from securitization of leases or property sales is possible to fill gaps that could emerge in the budget, Nogid said.
At a quarterly meeting of the oversight body and county officials yesterday, Mangano offered another $300 million of savings that were possible if needed to balance the budget “including more securitization of leases and land sales,” he said.
Maragos and Nogid declined to identify what property might be sold, and said the meeting wasn’t public. Nogid said property sales and issuance of bonds backed by county leases on office buildings were being considered.
The finance authority said it was “disturbed” by the prospect of asset sales to fund operating expenses. It said the county is also considering privatization of its sewer system.
Today’s issue also included a $71.7 million sale of taxable Build America debt, also won by Citigroup, which offered yields of 7.1 percent on securities due in October 2035. That’s about 0.91 percentage point above the average yield for the federally subsidized debt, according a Wells Fargo Build America Bond index.
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