MOODY’S DOWNGRADES ROCKLAND AGAIN

REPORT FROM MOODY’S, UNEDITED

Moody’s Investors Service has downgraded to Baa3 from A3 the rating on Rockland County’s (NY) $240 million in rated general obligation debt and placed the rating on review for downgrade. Concurrently, Moody’s has also downgraded to MIG3 from MIG 2 the $10.5 million Bond Anticipation Note Series 2011C. The bonds are secured by a general obligation pledge as limited by the Property Tax Cap – Legislation (Chapter 97 (Part A) of the Laws of the State of New York, 2011).

 

RATINGS RATIONALE

The downgrade of the long- and short-term ratings reflects a significant budget gap of more than $40 million in the county’s current year, placing heavy pressure on its financial operations and liquidity. The county had developed a plan to close this gap, but has failed to gain state approval for various revenue enhancements, including an increase in sales and other taxes, and has not garnered concessions from collective bargaining groups that would have resulted in expenditure savings. The county is also awaiting state approval to issue $80 million in deficit reduction bonds. Management has also failed to either sell or make financial improvements to the county-owned nursing home, which depends on operating support from the county.

 

The review for downgrade reflects ongoing challenges to the development and implementation of a plan to close the significant budget gap. The county may face difficulty in accessing the capital markets to refund its BANs and issue new cash flow notes in June, and is likely to incur significantly higher interest costs for the issuance of these notes.

 

STRENGTHS:

– Large tax base with strong socioeconomic indices

 

CHALLENGES:

– Large and growing undesignated General Fund balance deficits

– Inability to execute on revenue enhancements and expenditure cuts to close large budget gaps

– Extremely tight liquidity position with growing reliance on short-term cashflow borrowing

 

OUTLOOK

The review for downgrade reflects Moody’s belief that the county will be severely challenged to close the current year budget gap given the significantly weak financial and liquidity positions. It may also face challenges to market access for upcoming note issuances. Our review will also incorporate the county’s ability to get state approval and financing for its deficit reduction bonds.

 

WHAT COULD MAKE THE RATING GO UP (REMOVAL OF REVIEW FOR DOWNGRADE):

– Proven ability to access the capital markets for cash flow and deficit funding notes.

– Implementation of realistic revenue enhancements and expenditure reductions to close the significant gap.

– Clear and decisive plans to reduce the county’s liability to the nursing homes annual losses.

 

WHAT COULD MAKE THE RATING GO DOWN:

– Failure to implement realistic revenue enhancements and expenditure reductions to offset growing budget gap.

-Lack of state support or approval for actions to restore fiscal balance

-Difficulty in placing upcoming note issuances

 

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.