Standard & Poor’s downgrades town rating

Standard & Poor’s reduced the Town of Hempstead’s bond rating by three levels last week, but town officials noted that the municipality still received a solid investment grade and that there were a variety of reasons for the adjustment.

Standard & Poor’s is a major financial services company that publishes financial research and analysis on stocks and bonds. In a report released on March 3, S&P lowered the town’s rating from AA+ to A+.

“The downgrade reflects our view of the town’s very weak financial flexibility following the continued deterioration in its available general fund balance,” said Standard & Poor’s credit analyst Lindsay Wilhelm.

Town officials passed a $431.8 spending plan for 2015, for which they said they used $24.9 million in reserves. They noted that $68 million in savings remain.

Mike Deery, the Town of Hempstead communications director, said that officials have worked hard to adopt financial policies that have shown a high regard for taxpayers while earning the respect of Wall Street investors. A variety of factors beyond the town’s control have caused the most recent S&P rating adjustment, he said. “Weaknesses in certain market sectors, including depressed sales tax revenues and mortgage recording receipts, have adversely impacted several municipalities in our region,” Deery explained.

He added that another major factor played a role in the adjustment: Hempstead, in addition to North Hempstead and Oyster Bay, was ordered to pay the county back for Nassau students’ tuition payments to the Fashion Institute of Technology in New York City, in accordance with state education law. FIT is part of the State University of New York, or SUNY.

Nassau County has withheld sales taxes otherwise payable to these municipalities for the FIT tuition payments since 2010, according to S&P. The New York Court of Appeals upheld the practice in 2014, but the decision came after the town passed its 2015 spending plan –– with the withheld sales tax included in its budgeted revenue. The town thus owed about $17 million in 2014, in addition to $4.6 million in 2015.

According to the S&P report, the town has bonded money for the judgment costs related to the FIT tuition charge-backs, and analysts said they understood that town officials were able to do so.

“An arcane practice that has been the subject of conflicting court decisions leaves Hempstead Town residents on the hook for tuition costs associated with local students who attend” FIT, Deery said. “Nonetheless, Hempstead Town’s A+ rating by S&P is a solid investment grade rating that places the town at a level superior to the majority of municipalities across our state.”