In 2011, the Town of Oyster Bay had the highest investment grade possible for a municipality.
Then the town entered one of its recurring cycles of financial problems. By April 2016, the municipality was downgraded to the equivalent of “non-investment”—or junk bond—rating for the bonds it issued to finance operations or capital projects.
But all that will start changing.
The cost to borrow money for the town will go down, thanks to an upgrade from Standard & Poor’s Global Ratings. In a March 16 press release, the credit rating agency raised the town’s general obligation (GO) debt to BBB- from BB+ (which S&P’s classifies under its risky or junk bond category)—and added that the town’s outlook is stable.
The upgrade will pay dividends immediately. According to Oyster Bay Director of Finance Rob DaRienzo, the town will refinance about $81 million of bonds originally floated in 2008 and 2010. The bonds mature in 2027, and the lower interest rates will save taxpayers about $2.9 million over that period, according to DaRienzo.
“We were keen to refinance now,” DaRienzo observed. “The [Federal Reserve] benchmark rate has gone up several times and all indications are it will continue going up.”
“The upgrade reflects the steps the town has taken to stabilize liquidity, restore structural balance in its main operating funds, and begin replenishing its accumulated negative reserve balance,” said S&P Global Ratings credit analyst Victor Medeiros in a statement.
Among the positive steps cited by S&P are the 11.5 percent tax levy passed by the Oyster Bay Town Board under the administration of John Venditto late in 2016. Venditto stepped down in January 2017 to prepare his defense against federal corruption charges. The agency also cited a collective bargaining agreement that the town’s workforce agreed to and which came into force on Venditto’s last day in office: employees agreed to give back 2 percent of their salary from Jan. 1, 2017 through the end of 2018 to help the town weather its financial stress. In a recent agreement, the union will allow the town to hire part-time workers and, in exchange, full-time employees will get their pay restored beginning in July 2018.
S&P also praised the town for reducing its general fund accumulated deficit by about half, thanks to a 2017 fiscal year general fund surplus of $19 million. At the end of 2017 the cumulative deficit stood at $20.9 million and the town expects to produce a surplus of $3 to $4 million in fiscal 2018.
“The general fund surplus is the first positive result, on a recurring basis, the town has produced in the last 12 fiscal years,” Medeiros wrote. “Stronger revenue and expenditure assumptions, coupled with a roll-back of union salaries, savings from attrition and retirement, and a substantial tax levy increase, have aligned recurring revenues and expenditures, eliminating what was a persistent multiyear budget gap.”
He added, “Furthermore, the outlook reflects our view of the town’s ongoing market access to short-term liquidity. Consequently, we do not anticipate changing the rating during the two-year outlook period.”
In a press release, Oyster Bay Supervisor Joseph Saladino stated, “This upgrade is the best financial news Oyster Bay has had in years. We are being recognized by Wall Street after independent reviews and this great news clearly proves the bold steps we have taken to fix Oyster Bay’s finances. My administration put a stop to the past practice of endlessly borrowing against the future.”
The press release went on to note that the town “historically borrowed up to $100 million a year for capital projects. However, the Saladino administration reversed this trend in 2017 by not borrowing a single dime for capital projects—the first time in history the town accomplished such a goal.”
By the end of 2017, the town made close to $85 million in mandated debt payments, reducing its debt from approximately $763.6 million on Jan. 1 to $679.1 by Dec. 31, 2017.
The 2018 budget calls for another $75 million in debt to be retired, and plans for $25 million in new issues, resulting in a net reduction of $50 million.
The nearly $135 million in debt reduction in 2017-18 is the highest such figure in the town’s history, DaRienzo told Anton Media Group.
He said that, going forward, there were no specific large scale capital projects.
“We intend to maintain our infrastructure with conservative borrowing,” the finance director said, noting that the town plans annual debt reductions of about $50 million per year over a four- or five-year period.
“That will put us back to where we were as recently as 2011,” he stated.
