Riverhead Town prepares for debt refinance, will ask investors to refund
land preservation bonds this summer

Riverhead Town officials are preparing to seek refinancing of the town’s outstanding debt on about $70 million in borrowing done between 2000 and 2008 to finance land preservation. The refinance would extend by 30 years the repayment period on the debt and lower its annual debt service so that annual land preservation tax revenues will cover the cost — avoiding a potential double-digit general fund tax increase that would otherwise be necessary to cover it.

Refinancing the town’s Community Preservation Fund debt was made possible by a bill passed with the 2016 state budget, which allows the town to extend its repayment period on the debt and avoid a significant general fund tax increase that would have otherwise been needed to carry the debt service.

Riverhead officials’ first stop on Wall Street is a meeting with representatives of Moody’s Investors Services to discuss the town’s credit rating. Last year, Moody’s downgraded the town’s credit rating to Aa3 from Aa2 — at the time the lowest credit rating of any Long Island town.

Supervisor Sean Walter said yesterday he’s confident the town’s credit rating won’t slip any further this year — and even hopeful it might improve.

“We’ve balanced the budget — piercing the tax cap to do  so, which is what the investment rating service wanted to see,” Walter said.  “We’ve paid down debt and we can show them that CPF revenues will carry CPF debt service without dipping into CPF reserves by 2023.  We’ll be able to pay off the refinanced CPF debt within 30 years.”

Without the refinance, the town would have to rely on its general fund to pay CPF debt service by 2019, if annual CPF revenues remain at about $3 million. The year of reckoning has been pushed further into the future because CPF revenues have rebounded in the past few years. The CPF revenue stream had been suffering badly from a slumping real estate market following the 2008 crash.

CPF revenues come from a 2-percent transfer tax on real property sales. The CPF by 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.

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 in April allowing Riverhead to refinance the debt.

Riverhead officials will meet with Moody’s the end of this month, Walter said yesterday. The town will look to issue bonds to refinance the existing CPF debt sometime this summer, he said.

“We want to be able to take advantage of current low interest rates and get this done before the Fed approves an increase later this year, as is widely expected,” the supervisor said.

Yesterday in a special board meeting the town approved a home rule request on an amendment to the bill passed in Albany in April authorizing the refinance. The bill, as passed, granted the town the ability to borrow for up to 50 years — a longer period than is allowed by the state constitution.

“It was an error and the new bill will correct it,” Walter said after the meeting. But the error has no bearing on the town’s upcoming move to refinance, he said, because the town is not looking for a term longer than the constitutional limit of 30 years.

The bill passed in April — and the amendment to correct it endorsed by the Riverhead Town Board in yesterday’s special meeting — are separate and distinct from the overall extension of the Peconic Bay Region Community Preservation Fund program that will be on the ballot in November, when voters will be asked to extend the program from 2030 to 2050 and authorize the five East End Towns to utilize a maximum of 20 percent of the annual revenues for water quality protection.