- County used reserves to pay retroactive salary increases
- S&P cuts Westchester rating to AA+ and it could go lower
New York’s Westchester County, home to the wealthy suburbs of Scarsdale and Bronxville, lost its AAA grade from S&P Global Ratings and Fitch Ratings after drawing down its cash reserves to cover retroactive raises given to government employees.
The county, which borders New York City to the north, had its grade cut one level by both companies Tuesday to AA+. S&P said there’s a one-in-three chance that it will downgrade the county’s bonds again in the next two years as the government contends with budget shortfalls, given how “narrow” its reserves were at the end of the 2017 fiscal year.
The downgrades came ahead of the county’s planned auction of $200 million of general-obligation bonds on Thursday.
“We remain concerned over the county’s ability to sustainably align revenue and expenditures and rebuild reserves to a level consistent with that of similarly rated or higher-rated peers,” said S&P analyst Nora Wittstruck.
Westchester’s general fund balance could fall to less than 4 percent of spending at the close of fiscal 2018, about half the level of reserves the county had previously maintained, S&P said.
The new federal limit on deductions for state and local taxes and mortgage interest could further strain the county’s budget. That cap could make it harder for residents who pay the the highest property taxes in the U.S. to sell their homes, while others could challenge their real-estate tax assessments, potentially weakening Westchester’s biggest source of income.
The average property-tax bill in the county last year was $17,179, the highest in the the U.S., according to a report by Attom Data Solutions. The federal tax law changes set a $10,000 limit on deductions for state and local levies and capped the mortgage-interest deduction to loans of $750,000.
There are some signs that high property taxes and the federal shift are having an impact.
The median price of single family homes in the county dipped to $675,000 in the third-quarter of 2018, a 3.6 percent decline from the previous quarter, according to an October 11 report by Miller Samuel Inc. and and Douglas Elliman Real Estate. Luxury homes prices fell even more, with a 6.4 percent decline to $2.1 million.
Westchester is New York’s third-wealthiest county by median family income, after Nassau and Putnam and has the second-highest per-capita income after Manhattan.
The county’s new executive, George Latimer, has proposed selling parking lots in White Plains to plug a $22 million hole in his 2019 spending plan, according to the Journal News.
If the parking lot sale falls through, the county would have to cut spending, raise property taxes above the planned 2 percent increase or tap reserves again. The county’s $1.94 billion proposed budget includes $453 million in sales-tax revenue, 5 percent more than the year end-estimate of fiscal 2018, based on the expectation that the state will allow collections on Internet purchases.
“We believe the revenue forecast assumes a couple of significant risks,” Wittstruck said.
In a statement, Latimer said the downgrades weren’t a surprise.
“As we have said these past few months, the county is in serious financial stress,” Latimer said. “Regardless of the many steps we are taking to improve our footing, these problems were not created overnight and they will not be solved overnight.”