Rockland Wins as Latest Suburb Under N.Y. Oversight: Muni CreditFreeman Klopott
Rockland County, New York’s third-wealthiest, had its finances put under state oversight this month as it tackles deficits. Investors are betting the move will help the municipality get back on track.
The New York City suburb has company in its stress. Long Island’s Nassau County was already under a New York financial control board, while neighboring Suffolk, home of the Hamptons beach towns, declared a fiscal crisis last year. Rating companies cited volatility in the sales-tax revenue the municipalities rely on as a cause of the strain.
Rockland, 35 miles (56 kilometers) northwest of Manhattan, has the lowest Moody’s Investors Service rating among New York’s 62 counties. It got permission this month to borrow $96 million to help close a spending gap in exchange for allowing the state comptroller to force budget changes. Investors see the efforts as a buy signal: The extra yield on some Rockland obligations dropped 40 percent in the weeks after its most recent sale, data compiled by Bloomberg show.
“The onus is on the county to fix their structural budget deficit and this buys them some time and also puts more state oversight on,” said Howard Cure, director of municipal research at Evercore Wealth Management LLC in New York. The firm oversees about $4.7 billion, including Nassau and Suffolk debt. “From investors’ point of view, that’s a good thing.”
As the suburbs have struggled, the state is poised for its best bond grade since 1972 from Standard & Poor’s after Cuomo, a 55-year-old Democrat, won the first three consecutive on-time budgets since 1984. Investors have responded by demanding the least amount of extra yield on New York debt in two decades, Bloomberg data show.
Cuomo, who faces re-election next year, has focused economic-development efforts upstate, promoting technology industries in the region north of Rockland and Westchester counties. Westchester, bordering New York City, lost its top Moody’s grade last week, a rank it held since at least 2000.
In the last two months, Cuomo delivered $3.4 billion in investment to the Buffalo and Utica areas hundreds of miles northwest of New York. He says the initiatives will create almost 2,000 jobs for research and development of atom-sized computer chips, high-efficiency lights and solar cells. He has also used summits to boost yogurt, tourism and production of alcoholic beverages upstate.
When Cuomo won his first term in 2010, he lost the eight-county region surrounding Buffalo, the base of his Republican opponent, Carl Paladino. He won all four downstate counties.
“The state seems to be more concerned with the upstate area,” Stephen DeGroat, Rockland County’s finance commissioner, said by phone. “The recession had a bigger impact on the New York City metro area counties because a bigger chunk of their budgets was reliant on cyclical revenue like sales and mortgage taxes.”
Downstate governments are almost three times as likely to be in fiscal stress as those upstate, according to a September report by state Comptroller Thomas DiNapoli. Rockland was the most-stressed municipality among the more than 1,000 reviewed.
“Each municipality faces unique challenges,” Rich Azzopardi, a Cuomo spokesman, said by e-mail. With steps such as curbing pension costs, “no administration has done more to provide long-term structural relief to local governments -- from every corner of this state -- and give them the tools to get their fiscal houses in order.”
Unrelated to the deficit financing, Rockland issued $34 million of tax-free debt in October, with bond insurance, for projects such as repairs to roads damaged by Hurricane Sandy.
A portion maturing in October 2018 yielded 2.25 percent, or about 0.7 percentage point above benchmark munis, Bloomberg data show. Last week, the yield fell to 1.8 percent, for a spread of 0.41 percentage point.
Moody’s grades Rockland Baa3, one step above junk. Nassau and Suffolk are ranked A2, five steps above junk.
The suburban crises formed during the recession that ended in 2009 and the municipalities’ finances are just starting to revive. Through the first half of 2013, Nassau and Rockland led the state in sales-tax growth, DiNapoli said in August.
As the communities ringing New York City repair their finances, the wealth of their residents has provided a cushion. Nassau is ranked eighth, Suffolk 16th, Rockland 20th and Westchester 33rd in median household income among U.S. counties, according to Census Bureau data.
The housing market suffered losses downstate and it’s “hard to quantify the rippling effect that had on local governments,” Nathaalie Carey, assistant state comptroller in the local budget division, said by phone.
In June, lawmakers approved the Rockland deficit-borrowing bill and sent it to Cuomo, who signed it Nov. 13. The measure benefits the county partly because it adds oversight, according to Moody’s.
Rockland gets as much as 75 percent of local tax collections annually from sales levies, and its mortgage-tax revenue was more than halved by the recession and hasn’t recovered, DeGroat said. Almost half of Rockland’s deficit can be attributed to missing sales and mortgage-tax targets, he said.
Most of the projections in the county’s proposed fiscal 2014 budget are “reasonable,” DiNapoli said today in a report on the spending plan.
The county will close the deficit in part by borrowing the $96 million by March and paying it off over 10 years, while raising the property tax next year by almost 10 percent, DeGroat said.