In late April, Standard and Poor’s rating service lowered the credit rating of the Town of Oyster Bay’s general obligation bonds — debt backed by the full faith and credit of the municipality — two notches from BBB to BB+.
In the language of the municipal finance industry, Oyster Bay has achieved “junk bond” status because the debt is now rated below investment grade.
How did one of the nation’s wealthiest townships reach such a disgraceful low?
S&P explained it in their April 27, 2016 report. Here’s a summary:
For a decade, Oyster Bay has had a “chronically weak budgetary performance,” its liquidity is “weak” and management is “weak” because their budgetary planning and revenue and expense planning has been consistentlyoverly optimistic resulting in “persistent fiscal imbalances.” (Frankly, in my judgment, S&P is being charitable in calling management’s consistent failures as “weak.” I call it disastrous.)
Oyster Bay has had audited operating deficits since 2005.
In 2014, despite an 8.8 percent tax increase, the town incurred a $19 million operating deficit — a whopping 18 percent of adjusted general fund expenditures.
Town officials, S&P concluded, have shown an inability to make necessary intrayear revenue and expenditure changes to meet fiscal targets.
In addition, the town does not maintain debt management policies and reserve policies “that take into account the government’s cash flow and operating requirements and the historic volatility of revenues and expenditures through economic cycles.”
In other words, officials have been running town finances by the seat of their pants and have driven Oyster Bay to the edge of the fiscal abyss.
Although the audited numbers for fiscal year 2015 are not yet available, it appears the town’s finances did not fare well even though taxes went up another 8.8 percent.
S&P points out that the 2016 budget, which increases expenditures by an incredible 7 percent, “remains imbalanced as it includes an $8.8 million use of fund balance.”
Town officials who have learned nothing over the years, continue to employ “optimistic assumptions regarding several line items (which have recently underperformed) and [rely] on one time revenues.”
To add to these woes, not only is the general fund balance running in the red, the town’s other funds — highway, garbage collection, solid waste disposal, etc. — have an “accumulated negative unassigned balance of $68.1 million,” 22 percent of total government revenues.
Also, the town has deferred required pension contributions in 2014 and 2015.
While this is legally permissible, it is a bad fiscal practice. The town is merely kicking that financial obligation down the road to be paid by the next generation of taxpayers.
What a mess! And what was the reaction of long-time Oyster Bay Supervisor John Venditto to the bomb S&P dropped on the town?
He said, “I’m embarrassed, I am humiliated. We are asset-rich and cash-poor, but the problem is fixable.”
Fixable? If Oyster Bay finances are fixable, why weren’t they fixed during the past 10 years?
The town’s finances have not been fixed because there has not been any political will to do so.
Elected officials, attempting to be all things to all men, have given away the store and have employed smoke and mirror budgetary gimmicks for years, hoping to slide by until they were eligible to collect their pensions.
But before they could retire to Florida, their scheming backfired and now that the day of reckoning has arrived, what is Supervisor Venditto’s plan to avoid insolvency?
He appointed a task force that includes himself, Councilman Joseph Pinto, Town Comptroller Robert McEvoy and Town Finance Director Robert Darienzo — the very people who are most responsible for the mess.
I can’t imagine how Venditto kept a straight face when he said, “These are people who have first-hand knowledge of all information we’re going to need to address the issues we’re confronted with.”
What a ridiculous statement!
That crowds’ knowledge is limited to running a municipality into the ground.
What best describes Oyster Bay’s situation is the French aphorism, “plus ça change, plus c’est la même chose,”— the more things change, the more they stay the same.”
