Moodys has downgraded the credit rating of one New Jersey town as a result of damages caused by Hurricane Sandy and made negative revisions to nine other public finance debt issuers, primarily along the New Jersey Shore and the South Shore of Long Island.
The ratings agency issued a new report Wednesday downgrading the Borough of Seaside Heights to A3 and placed four Jersey Shore communities (Belmar, Lavallette, Long Beach, and Sea Bright) under negative outlook.
1. Moodys’ credit ratings range from Aaa (minimal credit risk) to C (typically reserved for bonds in default). A good credit rating lowers borrower’s interest rate, making it cheaper for cities and other issuers to borrow money.
The report noted Seaside Heights’ already weak position prior to the storm revenues. Seaside Heights was already weak for its rating prior to the storm as its budget is roughly 40 percent funded through beach activities.
“We expect the already-high debt burden to increase further as the borough borrows additional money to pay for Sandy recovery costs,” wrote the report’s author, Dan Seymour.
Moodys also placed five issuers under review for downgrade: Long Island Power Authority; New York University Hospitals; Union Beach, N.J.; and two revenue bonds from the New Jersey Casino Reinvestment Development Authority.
Although the ratings agency said it expects the U.S. public finance sector as a whole to manage the short- and long-term impacts of the storm, “delays in FEMA reimbursement for cleanup and overtime costs, as well as revalued property tax bases, could pressure some entities in the medium-term.” Moodys said it does not expect to issue any other downgrades or warnings, provided the rebuilding effort continues as expected.
The news comes as the New York State Comptroller announced on Wednesday that tax revenues were falling $168 million below the initial estimates. Overall, November’s closing General Fund balance of $2.5 billion was $28 million below the latest projections.
But the future may be brighter as Moodys notes the states and New York City should begin seeing an increase sales and income taxes in the coming months as the rebuilding effort kick starts construction activity. And, many of the issuers are expected to begin receiving FEMA aid soon. New York’s Nassau County expects to receive $17.2 million and the City of Long Beach, N.Y., expects to receive $24 million before the end of the year, according to the agency.
Issuers are expected to recoup most of their costs within two years.