Glen Cove Credit Rating Revised From 'Stable' To 'Negative'

GLEN COVE, NY — The outlook on Glen Cove's credit has been changed from "stable" to "negative" by Moody’s Investors Service, an indication that the city's finances could be pointing in the wrong direction.

Moody's on June 15 assigned a Baa2 rating to the city's $5.2 million various purpose serial bonds - 2020 Series A and the $800,000 public improvement serial bonds - 2020 Series B (federally taxable). The 2020 Series A bonds will be used to fund capital projects, the largest of which is road improvements. The 2020 Series B bonds will be used to fund separation payments.

"Concurrently, we have revised the city's outlook to negative from stable and affirmed the issuer and outstanding general obligation limited tax (GOLT) ratings at Baa2," the bond credit rating service said in a news release.

The rating reflects what Moody's called a "volatile reserve position that will turn negative in fiscal 2019 and likely remain negative through 2020." The rating also factors in a modestly-sized tax base that is quickly expanding, particularly along the water front, the company said. Glen Cove's long-term liability profile is "above average but manageable."

Moody's said it considers the outstanding debt to be general obligation limited tax because of limitations under state law that governs property tax levy increases. The lack of distinction between the ratings reflects the city council's ability to "override the property tax cap and the city's faith and credit pledge in support of debt service."

Notably, Moody's said the coronavirus crisis was not a "key driver" in its revised rating. It does not see any "material immediate credit risks" for the city.

"The biggest risks for 2020 are in aid from the county and state which totals over $4 million, of which up to $900,000 could be at risk," Moody's said. "Without federal support, management believes the city would not receive the $900,000."

That being said, the coronavirus crisis has rapidly evolved, and the long-term effects will depend on its severity and length.

The city didn't immediately respond to Patch's request seeking comment. City controller Michael Piccirillo told Newsday in an email the city plans to see an estimated 20 percent less funding from the state's Aid and Incentives for Municipalities and county's Local Assistance Program.

"This is a risk to our state and local aid as per our estimates based on guidance received from those authorities and information published publicly on the loss in sales tax revenues from both the state and county," Piccirillo wrote. "We receive aid from those authorities and it comes from their revenues, sales tax collection being a major source."

Councilwoman Marsha Silverman called the change "unfortunate but not unexpected."

"I have been calling for long term planning to build reserves since before I was on the Council," she wrote in a Facebook post. "I have requested a plan to limit non-essential spending in order to make up the potential shortfall from state & county aid."

RATING OUTLOOK

The negative outlook reflects management's challenges in bringing the city's budget into balance, coupled with a declining reserve position, Moody's said.

FACTORS THAT COULD LEAD TO A RATING UPGRADE

• Fiscal 2019 audited results significantly better than expectations
• Fiscal 2020 ends with balanced operations
• Fiscal 2021 and beyond see reserves grow in line with peers

FACTORS THAT COULD LEAD TO A RATING DOWNGRADE

• Fiscal 2019 audited results worse than expected
• Fiscal 2020 continues the downward trend
• Failing to adopt and operate within balanced budgets