New York’s Suffolk County, home of the Hamptons beach towns, is paying twice as big a penalty to borrow than it did a year ago, even after budget analysts cut its projected deficit in half.
The 86-mile (138-kilometer) stretch of eastern Long Island, where billionaires George Soros and John Paulson own estates, may face a $179 million gap through next year, according to the county Budget Review Office. The August forecast, which includes a planned nursing-home sale and expected savings on employee health care, is down from a $400 million shortfall in March.
Investors may be dubious about the deficit reduction because it relies on one-shot revenue and optimistic sales-tax projections, said Howard Cure, director of municipal research at New York-based Evercore Wealth Management LLC, which oversees about $3.5 billion, including Suffolk bonds.
“They have accomplished some gains in their budget as far as trying to get control over their overtime, lay off people, and increase revenue, but they still have a way to go,” Cure said in a telephone interview.
County Executive Steve Bellone, a 43-year-old Democrat, declared a fiscal emergency in March after Suffolk’s spending plan ended out of balance for the first time in two decades. The worst recession since the 1930s diminished its property- and sales-tax revenue. That has increased borrowing costs and forced officials to cut services and payrolls in the 16th-wealthiest U.S. county.
Suffolk sold $105 million in tax-anticipation notes this month. The one-year debt was priced to yield 0.6 percent, or 0.41 percentage point more than top-rated debt with the same maturity, according to data compiled by Bloomberg.
That was more than double the 0.15 percentage-point premium the county paid in September 2011 on the biggest portion of its $120 million note sale, Bloomberg data show. Three months after that sale, Moody’s Investors Service downgraded the county’s tax-anticipation notes one level to MIG 2, the second-highest short-term rating, citing Suffolk’s “narrowed cash position, with the potential for further financial weakness.”
The Budget Review Office presented its shortfall projections to Suffolk’s Budget and Finance Committee on Aug. 14, according to Gail Vizzini, the agency’s director.
The office forecast a $232.7 million budget gap, with the potential for it to be reduced to $179 million. The lower figure includes adjustments under consideration such as a property-tax increase, savings on employee health care and the sale of the John J. Foley Skilled Nursing Facility, which was approved by the legislature on Sept. 13.
“Analysts are now more leery of one-time fixes because there’s not as much confidence about the economy coming back,” Cure said. Suffolk, “for a good part of its revenue, depends on sales taxes, which have fluctuated,” he said.
Sales levies provided about 44 percent of Suffolk’s $2.8 billion budget for 2012, Vanessa Baird-Streeter, a spokeswoman for Bellone, said in June. The full valuation of taxable real property in the county has declined by about $50 billion since 2008, when the financial crisis began, according to offering documents for this month’s sale.
Suffolk usually has two large cash borrowings a year, according to Richard Tortora, president of Great Neck-based Capital Markets Advisors LLC, which works with the county. For this month’s sale, the county chose not to seek a Moody’s rating, he said. Suffolk plans to sell $400 million in tax-anticipation notes in December, he said.
The 0.6 percent interest rate on this month’s sale compares with 1.29 percent on a seven-month deal in December, when Moody’s lowered its rating. That means buyers still expect the county to meet its debt-service obligations, said Michael Pietronico, who oversees $800 million of munis as chief executive officer of Miller Tabak Asset Management in New York. Suffolk has the fifth-highest long-term bond rating from Moody’s, Standard & Poor’s and Fitch Ratings.
“While that is certainly punitive relative to other issuers, overall it’s not an indication the market is concerned about repayment,” Pietronico said. “The overall G.O. credit is still an acceptable credit to buy for a conservative investor.”
In the broader tax-exempt market, yields on benchmark 10-and 30-year munis declined yesterday. The interest rate on 10-year securities fell about 0.01 percentage point to 1.78 percent, Bloomberg data show.
The one-year notes that Suffolk sold this month traded Sept. 14 at an average yield of 0.4 percent, down from the original 0.6 percent rate, data compiled by Bloomberg show.
That’s still more than double the yield on top-rated munis maturing in a year, the data show.
Suffolk “is certainly problematic in the near-term,” Pietronico said. Still, “their recognition of those issues is the beginning of correcting the financial ills that plagued the county.”
Following are pending sales:
PORT AUTHORITY OF NEW YORK & NEW JERSEY, which finances reconstruction of the World Trade Center site, plans to sell $2 billion of taxable revenue bonds as soon as next week, with maturities as long as 50 years, according to a preliminary notice of the sale. (Updated Sept. 19)
MASSACHUSETTS plans to issue $400 million of general-obligation bonds via competitive sale as soon as Sept. 25, according to data compiled by Bloomberg. The debt will finance capital projects in the commonwealth. (Added Sept. 19)