Hempstead Town has just been awarded an upgrade in its financial outlook from Wall Street credit rating agency Standard & Poors Ratings Services (S&P). America’s largest township saw its outlook upgraded to “stable,” a rise from its “developing” outlook, in an October 12, 2016 credit profile. The ratings outlook upgrade comes on the heels of Supervisor Anthony J. Santino’s presentation of a 2017 budget that slashes spending, shrinks the municipal workforce and cuts costs.
“It’s gratifying that the work my administration has done over my first ten months as Town Supervisor in the area of fiscal reform and responsible budgeting has been recognized by independent Wall Street credit raters,” stated Santino. “This upgrade acknowledges the forthright approach to town finances and the aggressive cost-control measures that my budget team has implemented.”
The financial outlook upgrade by S&P recognized the town’s “improving financial position.” Additionally, the Wall Street credit rating giant indicated that continued improvement in the town’s financial position and financial reserves could result in a credit rating upgrade. Hempstead Town currently holds a solid investment grade rating of A+.
Some key observations made by S&P in its review included the recognition of Santino’s commitment to slashing the town’s budget for 2017, and his presentation of the town’s first structurally balanced budget in over 25 years. Specifically, the rating agency stated, “The fiscal 2017 proposed budget operating budget (across all funds) totals $422.7 million; a reduction of $13.4 million or 3 percent.” Further, S&P noted in referencing the Supervisor’s 2017 budget proposal, “More importantly, for the first time in over 25 years, it is a structurally balanced budget and does not include the use of reserves.”
“Residents deserve responsible budgeting from local government, and that is why I slashed the 2017 budget by over $13 million compared to last year’s spending plan,” said Santino. “What’s more, I think government should live within a budget just like families have to do. My 2017 budget proposal is structurally balanced, meaning that annually recurring revenues are equal to expenditures. There is no reliance on “one shot” (non-recurring) revenues or gimmicks to balance this budget. I am happy that Wall Street credit raters have acknowledged my dedication to responsible and accountable budgeting.”
S&P also recognized the town’s “….generally conservative budgeting practices…,” pointing out that “more than midway through fiscal 2016, management is reporting further positive estimates as revenues are trending above budget while expenditures are under budget.” For example, the fiscal 2016 budget called for the use of $22.9 million of reserves; however, the town anticipates the use of only $10.9 million, resulting in a positive variance of $12.0 million.
Another indicator of fiscal health for municipal government is the adequacy of financial reserves. Reserves can protect governments and taxpayers from sharp tax increases and inability to meet financial obligations. S&P noted in its report, “…the town has begun to work to restore fiscal stability and work toward stabilizing its financial position and restoring reserve levels.” Specifically referencing Santino’s 2017 budget, S&P’s report indicated, “The fiscal 2017 budget estimates a general fund surplus of $2.86 million; increasing general fund reserves to $4.4 million or 2.7 percent of expenditures. Management remains committed to restoring reserves back in line with its formal policy over the next several years.” The credit rating agency continued, “…we believe that the combined funds (general, part-time, highway, parks, sanitation, and water) still maintain healthy reserves at $56.1 million (9.7 percent of operating expenditures).”
In closing comments, the Wall Street rating agency stated, “The stable outlook reflects gradual improvement in the town’s financial position and reserves…” and further noted, “…if the town continues to improve its financial position and overall reserve levels…an upgrade may be warranted.”
“I am proud that my administration has made measurable and impressive strides in improving Hempstead Town’s financial position,” concluded Santino. “The upgrade of the township’s financial outlook to ‘stable’ assures residents that we are accountable to them. We are cutting costs, reducing the workforce and living within a strict budget.”