Standard & Poor’s raised its rating on the Town of Hempstead’s general obligation (GO) debt to AA- from A+. The outlook is positive.
At the same time, S&P assigned it’s AA- rating and positive outlook to the town’s $81.2 million series 2018A and $56.21 million series 2018B public improvement serial bonds; its $7.6 million series 2018C water district serial bonds; and its $31.11 million series 2018D public improvement refunding serial bonds.
The bonds are secured by the town’s full faith-and-credit pledge. This commits the town to using the full range of its fiduciary and taxing authority in the event of a default.
Among the reasons for the upgrade, the rating agency cited the town’s “strong budgetary performance” after years of “sizable deficits,” coupled with “increased budgetary flexibility.” Although the town’s 2017 financials remain unaudited, the general fund surplus is projected to increase by $14.7 million, bringing the general fund balance to $23.5 million. “Management continues to work diligently and conservatively toward structural balance” and improved reserves, S&P Associate Lauren Freire wrote in her rating report.
The town attributed its fiscal performance to “positive variances, totaling $17.9 million,” as well as higher-than-budgeted sales and mortgage tax revenue since 2015, according to the report. The town is also due to receive $57.4 million in the next 10 years as part of a garbage tax settlement plan and anticipates further savings from the use of LED lighting in its street lights. Continued reduction in personnel costs will also contribute to savings in the coming fiscal year.
Freire and her team considered the town’s economy “very strong,” according to the report, with effective buying income at 132 percent of the national average, on a strong tax base. The town’s management was described as “adequate.”
Offsetting the town’s strengths, S&P pointed to “downward pressure due to ongoing tax appeals and a weak debt-and-contingent-liability profile.” The agency also singled out as potential credit weaknesses “a large pension and OPEB [other post-employment benefits] obligation without a plan in place [that] we think will adequately address the obligation,” as well as debt-service carrying charges of 9.2 percent of expenditure.
Nevertheless, “We believe there is a 1-in-3 chance we could raise the rating during the two-year outlook period” if the town is able to maintain structural balance, as well as increasing or maintaining reserves “at levels we consider comparable with higher rated peers,” Freire wrote.
“I’m delighted that our conservative fiscal approach has been recognized with a bond rating upgrade,” Town Councilman Bruce Blakeman said.
Town Supervisor Laura Gillen said her administration was “committed to streamlining the cost of government and moving transformative economic development projects forward to create the best environment for taxpayers.”
“We had to make some very difficult financial decisions in 2016-2017,” Senior Councilwoman Dorothy Goosby said. “The bond rating upgrade is very good news for all Hempstead Town taxpayers.”