Although Unable to Secure Rating Upgrade, Through Poloncarz’s Efforts, Taxpayers Still Assured Best Possible Deal
ERIE COUNTY, NY—Today, Erie County Comptroller Mark Poloncarz requested that the Erie County Fiscal Stability Authority (“ECFSA” or “Control Board”) issue the County’s $84 million Revenue Anticipation Note (“RAN”) after learning the County will not receive Moody’s Investors Service (“Moody’s”) “Best Quality” rating of MIG 1, necessary to close a deal with M&T Securities Inc. (“M&T”). While Moody’s affirmed the County’s underlying rating of A2 with a stable outlook, it did not assign the best short-term rating of MIG 1 to the RAN, instead assigning a rating of MIG 2.
“Because Moody’s was unwilling to give Erie County the rating necessary to close the best deal possible with M&T, we now ask the Control Board to take over and utilize its underwriter to close this year’s RAN,” said Poloncarz. “Although disappointed with Moody’s assessment, having the Control Board as a fall back will ensure the taxpayers still get the best deal possible. Because of the way we positioned ourselves, regardless of the outcome, we couldn’t lose.”
After giving a presentation on the County’s financial standing to Moody’s last Thursday, Poloncarz was cautiously optimistic that the County would receive the MIG 1 rating; however, a final decision would be forthcoming from Moody’s credit rating committee. Despite this uncertainty, Chris Collins, who did not participate in the presentation and has attempted to undermine the Comptroller’s efforts throughout this process, went to the media indicating there should be “no problem” in obtaining the upgrade and took the opportunity to tout his administration’s progress.*
Poloncarz added, “Although I felt good about our chances, I never count my chickens before they’ve hatched, so to speak. In the end, it appears Moody’s doesn’t believe the County is quite as financially healthy as Chris Collins would lead you to believe. Although they made no reference to it, I just hope his ‘jumping the gun’ didn’t jeopardize our chances.”
In deciding against the upgrade, Moody’s explained that although the Comptroller’s cash flow projections are conservative, they are concerned with the County’s ‘narrow liquidity’ in relation to the date of the RAN’s repayment, the County’s General Fund Balance and overall cash reserves. Specifically, Moody’s cited the “$16.7 million appropriation from reserves” used to balance the 2011 Budget—something Poloncarz has been critical of in the past—and the likelihood such appropriation will result in the decline of the General Fund Balance at year end even if the County ended the year with a surplus.** Additionally noted, is the County’s “exposure to economically sensitive sales tax revenues, as well as additional financial vulnerability related to open labor contracts and potential future financial obligations to the Erie County Medical Center Corporation (ECMCC).”
Poloncarz continued, “I find it ironic that Collins was so quick to attribute a potential upgrade to his administration’s ‘progress,’ yet it was that same ‘progress’ that ultimately led to Moody’s decision against the upgrade. Moody’s is rightfully concerned, as I have been, at this administration’s reliance on one-shot revenue streams to balance budgets, which is what lead us into the ‘Red-Green’ fiscal crisis, specifically citing the use of $16.7 million in reserves to balance the 2011 budget. Additionally, although the county executive consistently claims ‘we are out of the hospital business,’ Moody’s noted the County’s guarantee of more than $100 million in debt associated with ECMCC as a long-term potential obligation that could impact the county’s financial position.”
Earlier this month, the Legislature approved a Declaration of Need authorizing ECFSA to issue the RAN in the event the County was unable close, and now will be asked to borrow on behalf of the County through its underwriter Roosevelt & Cross. The RAN is the County’s annual short-term cash flow borrowing, conducted to provide the County with interim cash while the County awaits federal and state aid and/or sales tax revenues from the state.
Despite objections from the Collins administration, the Comptroller’s Office issued a Request for Proposals (“RFP”) earlier this summer that solicited nine highly competitive responses from financial institutions, but one offer, from M&T, was at a substantially lower cost than what ECFSA initially presented from Roosevelt & Cross. The Control Board went back to their underwriter, who offered a second, more competitive bid that roughly matched the terms secured by Poloncarz with M&T. The difference between Roosevelt & Cross’ two offers amounts to approximately $150,000 in savings.
Poloncarz concluded, “By injecting competition into this process, through my office’s issuance of the RFP, we were able to leverage a better offer from ECFSA’s underwriter than they were initially willing to give us. Although I am disappointed we will not close on the best deal offered by M&T, between Roosevelt & Cross’s two offers, we were able to save the taxpayers approximately $150,000 in interest costs that would have been spent if we would have just gone with ECFSA from the beginning. This is what I call a win-win situation for the taxpayers.”
*Gee, Denise Jewell (9-9-11). “County upbeat after Moody’s call.” Buffalo News: http://www.buffalonews.com/city/communities/erie-county/article550230.ece
**Poloncarz, Mark (3-25-11) “Poloncarz warns: Erie County’s financial future not as strong as county executive says.” Retrieved from: http://www2.erie.gov/comptroller/index.php?q=32511-poloncarz-warns-erie-county039s-financial-future-not-strong-county-executive-says#node-45