The Village of Mineola Mayor and Board of Trustees adopted a debt management plan to address the village's $33 million debt. Despite the village's financial advisor's opinion that adopting the debt management plan was a positive step, he did say the possibility of the village's bond rating being downgraded from its current A2 status is a possibility.

During his campaign for mayor earlier this year, Jack Martins warned of the village's high debt and the necessity of a plan to get the village back on solid financial footing. Now, the mayor hopes to put in place responsible budgetary practices that will not only address the village's current debt but also prevent future debt from climbing to levels that threaten a healthy fund balance and encumber taxpayers.

In 1993, the village had a total bonded indebtedness of $3 million dollars. In the last 10 years, that number has risen to approximately $33 million.

While much debt was incurred for improvements to the village's infrastructure such as a new community swimming pool, a roller hockey rink, improved park facilities, new firefighting equipment, the acquisition and rehabilitation of a new village hall and community center, an expanded and reconstructed Mineola Library and an expansion of the village's principal firehouse, a large portion of the debt - $9.3 million or almost 28 percent of the $33 million debt - was incurred for non-capital items.

Of the $9.3 million, approximately $7.5 million was for bonds to cover tax certiorari payments or tax refunds to property owners who had overpaid their real estate taxes based upon over-assessment.

According to the village's now adopted debt management plan, the village board under the prior administration had engaged in a practice of borrowing more than necessary for capital projects to cover the initial years of interest payments, a practice that Mayor Martins pointed out had helped get the village into a financial hole.

According to the village's debt management plan, the net effect of this practice was the capitalization of interest in the approximate amount of $1.8 million.

The village will pay $2.95 million debt service a year for 17 to 18 years on the $33 million debt. Of the $2.95 million, $700,000 to $750,000 is attributed to non-capital items such as tax certiorari payments and capitalized interest. This $700,000 to $750,000 figure is particularly troublesome to Mayor Martins because it is money that has to be paid back for non-capital items. While the village is paying back money for items such as the library and the community center, those are items that can be enjoyed by village residents. The village is now paying $700,000 to $750,000 a year without seeing any benefit. That $700,000 to $800,000 would account for an 8 percent tax increase in the budget alone.

In putting together a budget for the 2003-2004 fiscal year, a major initiative by Mayor Martins was converting all of the village's short term debt into long term debt. Of the village's $33 million debt, $20 million is in short term Bond Anticipation Notes (BANS). The village is required to convert $5 million of that $20 million into 20-year bonds. However, the mayor, Deputy Mayor Larry Werther and Trustee Steve Franzini, in approving the 2003-2004 budget, favored converting all of the $20 million in BANS into long-term serial debt. The advantage is by doing so, the village locks in an historically low interest rate of about four percent. Even the village financial advisor Ray Hart admits that waiting to transfer all of the short-term debt to long-term debt is a gamble because the interests rates could very well go up. "We really hit this thing, I think, right where we needed to and the cost saving to the village and the taxpayers is significant," said Mayor Martins on the timing of converting all of the short-term debt to long-term debt while interest rates are at historically low levels.

As part of converting all of the village's short-term debt to long-term debt, the village has to go to Moody's for a credit evaluation. Mayor Martins said the village has been working on developing a debt management plan, something which may be viewed favorably by Moody's.

"Obviously it was time to take some action since this debt had risen very rapidly. I think just the establishment of this plan really signifies an awareness on the part of the board and management of the village that obviously this progression is not limitless and does have some implications," said Mr. Hart.

The village's debt service will be a factor that will be looked at. The village's debt service is about 14 to 15 percent of its budget. Typically, Mayor Martins said it should be at about 7 to 8 percent. "As a village and as a board, we are aware of our budgetary constraints. We are aware of our debt levels and we are taking steps permanently to address those debt levels all as part of preparing our presentation to Moody's," said Mayor Martins.

The village's debt management plan consists of understanding the debt level the village has reached, addressing those debt levels and limiting the amount of future debt the village may incur in the future. "This is just one step we can offer in terms of making an overall presentation to Moody's," said Mayor Martins.

The mayor expects that by the end of July or the first week in August, Moody's will interview village officials with respect to the village's credit rating.

The bad news for the village is that while it enjoys improvements to the infrastructure, which have caused property values to rise, the debt has gone up dramatically over the past 10 years. Most of the debt is tax-supported debt. However, Mr. Hart points out that while the tax-supported debt has gone up, the village's tax base that supports that debt has been detracting due to such factors as tax certioraris settlements.

Among the factors that Moody's will be looking into before it issues a credit rating to the village is its debt burden. Moody's will also be looking at debt per capita, which Mr. Hart estimates to be $1,600 to $1,700 per resident, a number he says is very high. A more typical level would be about $800 per resident.

However, the village does stack up well when measuring the debt to real property wealth, which is significant. Another critical issue Moody's will look at is the quality of financial management and what steps management is taking to control its finances within the available resources. The village board passed some major resolutions with the 2003-2004 budget that may help to ensure fiscal stability and be looked upon favorably by Moody's.

For one, the board's decision to convert all of its $20 million in short-term BANS to long-term serial bonds may be looked upon favorably since it shows the board is aware of the debt and is willing to handle it.

Another major resolution passed by the board is an initiative to put an end to borrowing for non-capital items. By putting an end to borrowing for everyday expenses and overborrowing to balance budgets, the village can begin to pay down the debt while maintaining a healthy unreserved fund balance in both the general and water funds.

In its debt management plan, the village board has also established a debt ceiling as well as a targeted goal for debt reduction. The goal is a total indebtedness of $29,750,000 by May 31, 2009, a period which covers the next five budget years. The goal is thus to reduce the overall debt of the village by $3,750,000 over that time period. Built into that goal is the allowance for borrowing some money for capital items such as equipment such as a street sweeper if the need should arise.

Mayor Martins hopes these initiatives will help the village keep its A2 bond rating. "We're aware of the problem. We're handling it," he said.