Help from state on CPF debt refinance won’t come easy, if at all

This one’s not going to come easy — if at all. And the clock is ticking.

The town’s Community Preservation Fund reserves are running out and when they do, the town’s general fund will have to help pay the debt service on $70 million worth of borrowing done more than a decade ago to fund land preservation efforts.

There’s about $15 million left in Riverhead’s CPF reserve. The CPF reserve is a kind of savings account for land preservation. The town collects a tax of 2 percent on real estate transfers that goes into the CPF reserve. The CPF money is, by state law, set aside for land preservation.

At the height of the real estate market, Riverhead decided to leverage anticipated transfer tax revenues for land acquisition — in other words, it borrowed against future income. When the real estate market went bust in 2008, that future income didn’t materialize as anticipated.

Riverhead has been paying the debt service on that borrowing — debt service that’s $5.8 million in 2015 — out of its CPF reserves, 2-percent transfer tax revenues collected over the years. But the real estate market has not recovered and sales in Riverhead continue to slump. Consequently, 2-percent transfer tax revenues also continue to slump in Riverhead, which continues to lag behind the rest of the East End in sales and prices.

CPF tax revenues in January dropped 8 percent compared to January 2014. They fell 18.2 percent in February compared to 2014.

It’s clear that unless there’s a sudden and dramatic turnaround in the real estate market in Riverhead, the town won’t be collecting enough new CPF revenues in 2017 and beyond to cover its CPF debt service. The difference will have to come out of the town’s general fund.

That reality was a large factor in Riverhead’s credit rating downgrade announced by Moody’s Investors Service last month.

With the town already struggling to meet its debt service on $40 million in debt incurred to close and cap its landfill, paying any portion of the CPF debt service out of the general fund will put the town in a very tough financial position.

“It’s a crisis. There’s no doubt about it,” Supervisor Sean Walter says.

The town can refinance the bonds on the open market, but that is a costly endeavor, Walter said. And interest rates it will have to pay on new debt are unknown. A downgraded credit rating doesn’t help.

Walter has been hoping to get the state Environmental Facilities Corporation to do the refinance for the town, which would eliminate the need for, and cost of, a new bond issuance.

The prospects of that happening are not looking good.

Walter has asked state legislators to add a provision essentially directing the refinance to a pending bill that would extend the 2-percent transfer tax to 2050. If approved by the legislature and signed by the governor, the extension would be put to a referendum, possibly this November.

Assemblyman Fred Thiele (I-Sag Harbor), author of the legislation, says that’s a non-starter.

Riverhead can seek to refinance its debt with the Environmental Facilities Corp. right now, Thiele said in an interview yesterday. “We don’t have to do anything to make them eligible.”

That’s true, Walter agrees, but refinancing old debt does not get a high mark on the EFC’s scorecard, a tool used to rate applications for assistance. Without intervention by legislators, the town isn’t likely to get EFC to do the refinance, according to the supervisor.

“Open space preservation is an eligible project” under EFC guidelines, Thiele said. “But the EFC is competitive,” he acknowledged. “Senator LaValle and Assemblyman Palumbo and I can all contact EFC and support it. But we cant legislatively jump them ahead.”

Without a guarantee of EFC assistance, Walter said, he will not vote for the home rule message the state needs in order to put the CPF extension on the ballot. “And I will lobby the members of the town board to reject it.”

Extending the CPF doesn’t do Riverhead any good, the supervisor said. In fact, he believes, the 2-percent transfer tax contributes to the town’s slumping real estate sales.

Walter said he’s not sure if Riverhead’s refusal to sign off on the extension could derail the effort altogether, because the legislature may be able to write legislation for extending the transfer tax in the other towns, excluding Riverhead.

But if Riverhead’s refusal throws a wrench into the CPF extension, Walter said, “I have no problem holding it hostage.”

PECONIC BAY REGION COMMUNITY PRESERVATION FUND
ACTUAL REVENUES
1999-PRESENT
MILLIONS OF DOLLARS