“Moody’s Investors Service has downgraded the Town of Ramapo, NY’s general obligation debt to A3 from A1. The outlook has been revised to developing. This action concludes the review for downgrade initiated on April, 15 2016, and affects $146 million of outstanding direct GO and GO-backed debt. The downgrade to A3 reflects the degree of increased risk stemming from the charges brought by the US Justice Department and the SEC, which have resulted in near-term disruption in management and a likely delay in financial reporting and disclosure.”
The “increased risk” will make future Ramapo bonds less desirable to potential investors. Those are the same investors that the SEC has charged were the victims of fraudulent bonds sold by St. Lawrence and his board, and for which he is facing 22 federal corruption charges and the same number of SEC civil charges.
Higher risk usually means you have to offer investors higher interest rates, and taxpayers, on the hook to repay the loans (bonds), will have to pick up the increased cost for the loans. That’s if they can be sold, given the circumstances.
About the future, Moody’s explains, “The developing outlook reflects unknown aspects of the federal charges which, once resolved could result in rapid restoration of operating stability. Downside risks could include an audit restatement or financial adjustments, but given the details of the charges, the magnitude appears limited. Combined with additional, unforeseen events, however, such a restatement could negatively affect credit quality.”
Further, the analysts write, “The developing outlook reflects uncertainty around the eventual outcome of the federal charges, including the possibility that the town’s financial position could be materially different than what was presented in previous audited financial statements. We believe the downside of any financial adjustments would be limited based on the specific allegations in the charges, although in combination with other events could result in additional credit risk.”
It’s possible that the credit rating could descend even lower. Factors that Could Lead to a Downgrade according to Moody’s:
- A restatement of the Town’s financial situation that shows weaknesses that are worse than are assumed now.
- An ongoing disruption of management.
- Continued inability to maintain balanced operations resulting in additional fund balance declines.
- Severe tax base declines.
- Erosion of cash position.
Answering the questions that remain, concerning the Town’s future, depends on resolving the legal charges against the top officials who were responsible for the fraud in the first place. That will take months, if not a year or more. That puts the residents at the mercy of a board with an admitted record of doing just what the Supervisor wants, often without even reading the resolutions they voted on.