Moody’s downgrade pushes Valley Stream to the edge of junk

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Moody’s Investors Service downgraded the Village of Valley Stream to Baa3 from Baa1. At the same time, the rating agency assigned a Baa3 rating to the village’s $8.8 million various purpose serial bonds. The outlook is negative.

The downgrade is the latest in a series of actions that have seen ratings on the village and its general-obligation debt fall from Aa2 in 2013.

Tax appeals were one of the largest challenges facing the village, according to Moody’s analyst Vladimir Puchek, who authored the rating report. And “tax appeals will continue to pressure the village in the near term,” he wrote. Because of them, average annual assessed value fell by 1.3 percent per year. The result in 2016 was a shortfall of $1.3 million; unaudited statements for 2017 showed an additional operating deficit of roughly $1 million. Employee benefits and the annual transfer to the library fund from the general fund also contributed to the decline.

The balanced 2018 budget included a 1.5 percent increase in the tax levy and anticipated a reduction in tax appeals that would save the village roughly $600,000. Savings were also expected from personnel vacancies, property leases and solid waste disposal.

Among the village’s credit strengths, Puchek cited a moderate debt burden and a stable tax base with above-average levels of wealth.

Factors that could lead to a further deterioration and subsequent downgrade included continued declines in reserves and liquidity and the failure to present operating budgets that were structurally balanced, with recurring revenue offsetting recurring expenditures.

As in many municipalities, Valley Stream’s managers have had to choose between raising taxes to meet rising operating costs and extraordinary expenses or issuing bonds. Valley Stream’s moderate debt burden of roughly $35 million indicates that its managers have not opted for the second course as frequently as in other municipalities. The most recent debt offering of $8.8 million was for construction of a waste transfer facility, as well as needed maintenance and the purchase of new vehicles.

“Moody’s would upgrade us in a second if we were willing to raise taxes,” village Treasurer Michael Fox said. “But it’s our job is to serve the residents of Valley Stream, not Moody’s investors.” Because of the challenges the village has faced in recent years, “it’s taken longer than expected for our strategies to be effective,” he said.

The village was looking at “cutting expenditures and increasing revenue from non-tax sources,” Fox said. “Things like parking fines or fees for our parks, some of our other facilities, haven’t been raised since the 80s or 90s.”