Sullivan debt ratings remain rosy—for now

By IRA JAY COHEN, Sullivan County Treasurer

On Thursday, July 6, the county successfully sold nearly $22 million in bonds and notes, comprised of $5.1 million in Public Improvement Serial Bonds and $16.7 million in short-term Bond Anticipation Notes (BANs). In fact, more bidders showed interest in both issues than in previous years. This was mainly the result of the evaluation and report on the county’s fiscal condition by Moody’s Investor Service, one of the primary rating agencies in the public market. Moody’s issued its report just prior to the public sale in New York City, in which it assigned and reaffirmed the county’s A2 long-term general obligation rating, as well as their MIG1 rating for our notes.

Bond and note proceeds both will finance various capital projects, including landfill improvements that are expected to be permanently financed next year through the state’s Environmental Facilities Corporation.

Moody’s commented that the county was successfully dealing with its inability to obtain the additional sales tax increase of 0.5 percent in 2006 by cutting budgeted expenditures by over $4 million, and felt that we would be able to replenish the General Fund balance as well “given strong year-to-date sales tax and mortgage tax collections and revenues from the sale of property that are expected to exceed budget.”

The county’s General Fund has operated at a deficit for the past two years, spending approximately $7 million more than it received in revenues in 2004, and approximately $4.3 million more in fiscal 2005. Moody’s reported that these operating deficits have resulted in a weakened financial position, but anticipated that with expenditure reductions made at mid-year in the 2006 budget, stabilization is anticipated in 2006. Hence the reaffirmation of our current bond rating—for now.

But if spending is not curtailed, and if the General Fund balance is not replenished, the county’s bond rating, and therefore its credit profile, will suffer, making it more costly, perhaps unreasonably so, to fund capital projects in the future. Even a 0.5 percent increase in the rate that we might be forced to pay on our debt if we do not stabilize our spending and increase our revenues could cost county taxpayers over $11 million more over the repayment life of such bonds.

As far as revenues are concerned, it should be noted that while the sales tax is seen as somewhat regressive, it is the most widely accepted option in the county, being preferred by most citizens to higher real property taxes. Inaction by our state representatives and their refusal to adopt sales and room tax rate increases in 2006 was detrimental to the sound fiscal condition of the county. Our state representatives must work harmoniously with county officials to provide this revenue source as soon as is possible, and they should announce their intention and commitment to do so now, so that the 2007 budget can be prepared accordingly. The room tax rate increase is also important in this respect. And citizens of the county must be realistically prepared for a modest real property tax increase as well.

Over the long-term, I propose the adoption of a new fiscal initiative that will put into place a continuing five-year capital spending plan wherein specific spending requests will be reviewed by a financial review committee comprised of county officials, that will help assure more effective fiscal planning, debt management and long-term budgeting.

As we move into the 2007 budget cycle and beyond, and as we consider returning to the bond market with major new capital initiatives such as the new jail and perhaps an expanded landfill, we must be able to retain, if not enhance, our current bond rating. We must be able to demonstrate that we can stabilize our deteriorating fiscal condition by cutting costs and by saving for the future. This, and only this, will enable us to fund future capital projects, control future debt and provide programs and services that the citizens of the county need and deserve.