SUFFOLK COUNTY LEGISLATURE Robert Lipp BUDGET REVIEW OFFICE Director May 10, 2019 DuWayne Gregory, Presiding Officer and Members of the Suffolk County Legislature Dear Legislators: Accompanying this letter is the Budget Review Office Review of the Proposed 2020-2022 Capital Program and 2020 Capital Budget. On a personal note, I would like to thank the entire staff of the Budget Review Office for their hard work and long hours in preparation of this report. I am confident you will find the quality of this report up to Budget Review Office standards. The credit for our work effort goes to each and every member of the Budget Review Office. My staff and I remain ready to provide whatever assistance the Legislature may require during the capital program and budget evaluation and amending process. Sincerely, Robert Lipp, Director Mailing Address: P. O. Box 6100, Hauppauge, NY 11788-0099 (631) 853-4100 FAX: (631) 853-5496 e-mail: [email protected] SUFFOLK COUNTY LEGISLATURE DuWayne Gregory, Presiding Officer Robert Calarco, Deputy Presiding Officer District 1 Al Krupski 2 Bridget Fleming 3 Rudy A. Sunderman 4 Thomas Muratore 5 Kara Hahn 6 Sarah S. Anker 7 Robert Calarco 8 William J. Lindsay, III 9 Samuel Gonzalez 10 Thomas Cilmi 11 Steven J. Flotteron 12 Leslie Kennedy 13 Robert Trotta 14 Kevin J. McCaffrey 15 DuWayne Gregory 16 Susan A. Berland 17 Tom Donnelly 18 William Spencer Clerk of the Legislature Jason Richberg Counsel to the Legislature Sarah Simpson SUFFOLK COUNTY LEGISLATURE The Budget Review Office Robert Lipp, Ph.D. Director Rosalind Gazes Deputy Director Benny Pernice Chief Legislative Analyst Joseph Schroeder Energy Specialist Cary Flack Systems Analyst Supervisor Robert Doering Senior Legislative Analyst Craig Freas Senior Legislative Analyst Tyara Briefs Legislative Analyst Laura Halloran Legislative Analyst Elizabeth Stroehlein Legislative Analyst Laura Tepedino Web and Social Media Administrator Anthony Oliveto Office Systems Analyst III Joseph Muncey Assistant Legislative Analyst Thomas Corcoran Research Technician Janice Lawlor Office Systems Technician William O’Brien Legislative Technician David Petrie Office Systems Technician Andrew Tarantowicz Legislative Technician Sharen Wagner Principal Office Assistant TABLE OF CONTENTS Section Page Analysis of the Proposed Capital Program 1 Suffolk County Land Acquisition Programs and Policies 7 Capital Projects Included in the Proposed Capital Program and Budget As Previously Adopted and Requested by Departments 14 Debt Service Impact 19 Index of Capital Projects 20 Individual Capital Project Reviews 29 2020-2022 Proposed Capital Program Schedule 410 Appendix 426 Analysis of the Proposed Capital Program Analysis of the Proposed Capital Program Overview The primary focus of this section of the report is to project the extent to which operating budget debt service costs, associated with the capital program, are likely to increase or decrease over the next several years. A projected increase would make it more challenging to avoid a deficit, while a projected decrease would provide some budget relief. Our emphasis will be on capital projects that are financed with non-sewer serial bonds, referred to as B-money in the capital program. The vast majority of these bonds are obligations of the General Fund. For a better understanding of the assumptions used in our projections, refer to the write-up in this report titled “Debt Service Impact.” In what follows, we discuss our findings as they relate to serial bond debt, and conclude with several summary measures of mostly non-sewer serial bond financing of the capital program. Findings: The cost of serial bond debt service (excluding sewers) is forecast to increase in four of the five years of our forecast period (2019 through 2023). Debt service costs are projected to exceed the 2019 adopted amount by $1.5 million this year (2019), by $3.3 million in 2020, $2.1 million in 2021 (decreasing from $3.3 million more than 2019 to $2.1 million more), $9.3 million more in 2022, and an additional $18.96 million in 2023. Notice that the cost increases (with one exception) get larger each year. This is an important observation. If there is no policy designed to control debt service costs, then the County’s debt service expense will likely continue to exceed 2019 levels in the future. Among other things, our projections assume that the County borrows $100 million each year. In order to maintain 2019 adopted debt service levels, future serial bond issues would have to be restricted to approximately $70 million per year. Due to the County’s many capital needs, a cut of $30 million per year would be very challenging for the County to enact. As an example of an alternative policy that the Legislature could consider would be to set bond authorizations (for B- money) at $100 million per year with a procedure to pierce that targeted amount. There are other factors besides current and future capital needs that make it difficult to reduce debt service costs. In particular: (1) Pipeline debt: This represents authorized unissued borrowing. Currently, non-sewer pipeline debt is $265.8 million. Over the past year it increased by $6.9 million, making it slightly more difficult to limit borrowing. (2) Pay-as-you-go: The County has a pay-as-you-go policy, where recurring projects would be funded with cash in the operating budget. However, County finances have made it difficult to pay upfront. If anything, the County has moved away from such a policy. For instance, cars and other vehicles as well as computers used to be purchased with cash, but are now funded with the proceeds of debt. Another example is legal settlements. The trend has been from paying cash to borrowing for settlements. (3) Debt service on previously issued serial bonds: Current principal and interest payments could include debt service costs on capital projects that go as far back as 20 years ago. As such, any change in debt policy is not likely to see significant results until much of the existing debt service works its way out of the system. 1 Analysis of the Proposed Capital Program (4) Credit Rating: The County’s credit rating has been downgraded a number of times this decade. In 2010, the County’s overall credit rating was either “AA” or “AA-“ in the opinion of the three major credit rating agencies (on a scale where “AAA” is the best rating possible). Currently, Fitch and S&P have given the County an “A-” rating, while Moody’s has given the County a Baa1 rating (the equivalent of BBB+ for the other agencies). Lower credit ratings result in higher interest rates, which in turn result in higher debt service costs. Putting things in perspective, the County’s capital program is not the main source of our financial difficulties. The impact that debt has on the operating budget is limited in the sense that total serial bond debt service only represents about six percent of total County expenditures (excluding interfund transfers). With that said, the Legislature may still wish to consider policy options that control or reduce debt service costs. Any mention of debt policy would be incomplete without reference to Resolution No. 208-2019, adopting the official debt policy of Suffolk County. One of the provisions of that policy is that County debt service “should not exceed 8% of the total County operating budget.” Even with the future increases on the horizon, the County is not in any danger of exceeding that eight percent threshold. For reference, other municipalities have adopted debt policies with serial bond debt thresholds equaling 10% of their total operating budget. It remains to be seen how effective that legislation will be. We conclude this section of our report with several summary measures of mostly non-sewer serial bond financing of the capital program and its debt service impact on the operating budget. Authorized and Proposed Levels of Serial Bond Borrowing (Table 1) • 2019 pipeline debt represents authorizations for the County Comptroller to issue serial bonds for capital projects approved by the Legislature. These bond authorizations are for projects that, for the most part, are already underway or are expected to be undertaken within the required five-year time limit set by Local Law 15-2002. As of March 1, 2019, excluding sewers, there is $265.8 million in pipeline debt. This represents an increase of $6.9 million (2.7%) from last year. • The 2019 Adopted/Modified Capital Budget includes $102.3 million in serial bonds for non-sewer projects that are contained in the County Executive’s modified version of the Adopted 2019 Capital Budget. This represents an increase of approximately $6.4 million from last year. • The Proposed 2020-2022 Capital Program calls for borrowing $481.6 million for all funds: $129.8 million in 2020, $195 million in 2021 and $156.9 million in 2022. These amounts represent recommended additions to 2019 adopted capital authorizations. 2 Analysis of the Proposed Capital Program TABLE 1 Authorized and Proposed Levels of Serial Bond Borrowing 2019 Pipeline Debt, 2019 Adopted/Modified, and 2020-2022 Proposed Capital Program 2019 Pipeline Debt 2019 (Authorized Unissued Adopted/Modified 2020 2021 2022 1 as of 03/01/19) Capital Budget Proposed Proposed Proposed General Fund Serial Bonds (includes other Funds that are 2 General Fund obligations) $260,250,682 $94,732,000 $95,806,000 $134,123,000 $119,901,000 Police District Serial Bonds (includes other Funds that are Police 3 District obligations) $5,522,000 $7,549,000 $8,685,000 $19,376,000 $7,400,000 Serial Bond Subtotal (all B-money) $265,772,682 $102,281,000 $104,491,000 $153,499,000 $127,301,000 Sewer Districts Serial Bonds 4 (all X-money) $297,559,596 $4,750,000 $25,300,000 $41,500,000 $29,550,000 Total $563,332,278 $107,031,000 $129,791,000 $194,999,000 $156,851,000 1.