Ramapo, N.Y. was too highly rated by Moody's Investors Service and remains so after recent federal charges against town officials, according to a new report from Gurtin Fixed Income Management.
Moody's rated Ramapo A1 with a negative outlook prior to the civil and criminal charges filed by the Securities and Exchange Commission and the U.S. District Attorney for the Southern District of New York related to issuing bonds for a minor-league baseball stadium.
The town's profile was "fundamentally misrated," Gurtin said, despite red flags indicating financial distress.
The town's rating was placed on review for a downgrade by Moody's a day after the charges, but Gurtin noted in its municipal credit update released Tuesday that a review of financial statements showed "serious liquidity concerns" long before the charges brought Ramapo into the spotlight. Moody's confirmed Ramapo's A1 rating multiple times after the Federal Bureau of Investigation first raided town offices in May 2013.
"The signs were there that risks had increased," said Tom Schuette, co-head of credit research at Gurtin. "Their finances are not in any way in line with an investment grade rating."
The recent federal fraud charges allege misstatements of financial reporting to finance a $60 million stadium for the Rockland Boulders, an independent minor league team.
Gurtin noted that Ramapo's 2014 fiscal year-end general fund balance closed at $1.6 million, or 4.6% of general fund revenues, with available funds for emergency expenses at "essentially zero." Gurtin says that Moody's Scorecard for U.S. Local Government General Obligation Debt shows that Ramapo's fund balance numbers should have aligned more closely to a Baa-Ba rating range and that it offset this indicator of potential distress with the town's high wealth size.
"There were many red flags that were missed," said Schuette. "The town's financial position has been tremendously week for a while."
Moody's declined to comment on the Gurtin report.
The charges spearheaded by U.S. attorney Preet Brahara include 22 counts of wire fraud, securities fraud and conspiracy to commit securities fraud against Town Supervisor Christopher St. Lawrence as well as Aaron Troodler, former executive director of the Ramapo Local Development Corp., which issued bonds for the stadium. Also charged were town attorney Michael Klein and Nathan Oberman, the town's deputy finance director. Investigators said the defendants tried to conceal the town's deteriorating general fund that faced deficits ranging between $250,000 and $14 million from fiscal years 2009 to 2014.
