State legislation brings Riverhead reprieve on land preservation debt repayment

Riverhead has dodged a bullet.

The State Legislature passed a bill with the budget package last week that will allow the town to refinance its outstanding debt on about $70 million in borrowing done between 2000 and 2008 to finance land preservation.

The town, by extending its repayment period, will be able to avoid the significant general fund tax increase that would have otherwise been needed to carry the debt service.

By state law the East End towns collect a 2-percent transfer tax on real property sales within their borders. The transfer tax is put into the community preservation fund, which, by state law, is 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.

After the real estate market went bust in 2008, that future income didn’t materialize as anticipated, so Riverhead has been relying on its CPF reserves to make up the difference between transfer tax revenues collected and debt payments due. But the reserves are running out. (They would have been complete depleted by fiscal year 2017, but a modest uptick in the real estate market and, as a result, CPF revenues, gave Riverhead another couple years’ breathing room, Walter said today.)

Faced with having to allocate more than $2 million a year from the general fund to pay the land preservation debt — which would have required a double-digit town tax rate increase — town officials lobbied state lawmakers for help. It came in the form of the bill passed last week.

By being able to extend the repayment period, Riverhead will lower its payments and will be able to pay off the debt relying solely on current CPF income.

Riverhead Supervisor Sean Walter said the town is grateful for the help it got from Sen. Ken LaValle and Assemblyman Fred Thiele, who carried the bill in their respective legislative chambers.

“Once we do the refinance we’ll finally be in a position to truly balance all facets of the town budget,” Walter said. “The general fund will be balanced and the CPF will be balanced.”

Now Riverhead must do the refinancing and Walter is hopeful that the town’s bond rating, which was downgraded last year from Aa2 to Aa3 will remain unchanged. “That’s my hope,” he said.

The town did not rely on general fund reserves to balance its general fund budget this year, for the first time in more than a decade. But it had depleted its general fund reserves to a level that made Wall Street analysts unhappy, which led to last year’s downgrade. The town has also not incurred any new debt.

That’s good news for the long term, Walter said.

“It has always been my goal to leave the town in a fiscally solvent position,” he said.