Long Island's Oyster Bay Cut to Junk by S&P on Budget Deficitsby
Downgrade to BB+ caps off years of worsening credit quality
Reserves and liquidity `significantly deteriorated,' S&P says
Oyster Bay, the town in New York’s Long Island that was formerly home of U.S. President Theodore Roosevelt, had its credit rating dropped to junk by Standard & Poor’s because of persistent budget deficits.
S&P cut the town two steps, to BB+ from BBB, and has a negative outlook, signaling potential future downgrades. The now-junk rating caps off a precipitous decline in Oyster Bay’s credit quality. As recently as May 2012, it had a AA rank, the third-best, and eight levels higher than it is now.
“Oyster Bay has had 10 consecutive years of audited operating deficits in its general fund, and as a result, financial reserves and liquidity have significantly deteriorated,” S&P analysts Victor Medeiros and Rahul Jain said Wednesday in a report. “We believe these deficits are associated with the town’s lack of forward-looking financial management policies and relatedly, a history of optimistic revenue and expenditures assumptions without sufficient validation.”
Oyster Bay, along with encompassing Nassau County and neighboring Suffolk County, home of the Hamptons beach towns, has shown investors in the $3.7 trillion municipal market that even wealthy localities can come under fiscal strain. Even though its household income is almost double the New York median, the town has run into swelling costs for pensions and other post-retirement benefits.
The town had a $19 million operating deficit in its general fund for the 2014 fiscal year, according to S&P. To remedy the shortfalls, it’s seeking concessions from unions, hiring freezes and further tax increases, the credit rater said.
A collection of 18 independently governed villages, Oyster Bay is home to about 295,000 residents about 34 miles (55 kilometers) east of New York City. Sagamore Hill, a home Roosevelt used starting in the 1880s, is in the northern part of town near the bay itself. Also referred to as the Summer White House, it’s considered a National Historic Site by the U.S. Department of the Interior.