Debt Management Plan

I. Executive Summary

The size of the indebtedness of the Town of North Hempstead ("Town" or "North Hempstead"), both in total terms and as a percentage of overall expenditures, has emerged as an issue of public, political, and governmental focus.

Given this focus, it is important to provide an objective analysis of the scope and sources of the Town's general obligation indebtedness. Although the Town's debt level is consistent with comparable jurisdictions, the Town's ratios of debt per capita and debt service as a function of total expenses are high. The Town's present debt structure has its roots in the Town's history of solid waste management. Two-thirds of the outstanding bonds in the Town general fund, and half of the Town's general fund debt service, involve the financing of the remediation of the Town landfills, the construction of a solid waste transfer station, and the acquisition and development of the golf complex on the Morewood property, the former site of a proposed Town incinerator. Many of these costs were borne pursuant to State and Federal mandates, and much of this work was undertaken and financed over the last six years.

Because the bulk of the debt required to finance these projects has already been issued, the Town is uniquely positioned to develop a strategy to address future debt accumulation. By establishing annual debt issuance targets that are lower than the amount of maturing debt, the Town can realize annual reductions in net outstanding debt and debt service payments. This strategy is encapsulated in The Town of North Hempstead Debt Management Plan ("DMP"), which is included in Section V of this document.

The DMP will have a considerable effect on the Town's debt structure (these effects are summarized in Figure 1). Between FY 2000 and FY 2010, the DMP will reduce the Town's exhausted Constitutional debt limit to 10.89%, reduce our debt per capita by 34.3%, reduce the Town's total outstanding debt by $107 million, reduce generally supported indebtedness in the general fund by $80 million and in the highway fund by $15 million, and reduce generally supported annual debt service obligations in the general fund by $2.7 million and in the highway fund by $2.04 million. [1]

Reduced Debt per Capita: The DMP will reduce the principal debt per capita in the Town by 34.3% from $1,301 to $855.

Reduced Debt Service Obligations: The DMP will reduce the annual debt service obligations of the Town's general fund and highway fund by 15.0% and 25.0%, respectively, resulting in a debt service expenditure reduction of $2.7 million the general fund and $2.04 million in the highway fund.

Reduced Outstanding Principal Debt Town-wide: The DMP will reduce the overall outstanding principal debt of the Town, considered here as a reporting entity by 37.02%, from approximately $289 million to $182 million. This represents a reduction in overall principal debt for the Town of nearly $107 million.


Reduced Outstanding Principal Debt in Town Operating Funds: The DMP will reduce the outstanding generally supported principal debt in the Town's general fund by 48.72% (or nearly $80 million) and the Town's highway fund by 29.71% (or over $15 million).


Should the Town Board adopt the DMP, North Hempstead will be - to the best of our knowledge - the only Long Island Town to govern the issuance of its indebtedness by a formal, long-term plan such a the one developed herein, and further, we will be in a strong position to make the case to the fiscal rating agencies, notably Moody's Investors Service, that the Town has a credible, thought-out, Board-sanctioned debt management plan which will result in lower annual debt service payments, less outstanding principal indebtedness, and far less pressure on our fund balance.

II. An Analysis of the Town's Finances and Indebtedness

At the close of FY 1998, the Town reported positive fund balances in its major operating funds and in the Solid Waste Management Authority ("SWMA"), marking the first time since the mid-1980's that the Town's four principal funds realized surpluses at the conclusion of the same fiscal year. During FY 1999, Moody's Investors Service upgraded the Town's long-term bond rating from A3 to A2. This was the first time in 29 years that the Town received such an upgrade. [2] In addition, Moody's assigned to the Town's short-term notes a rating of MIG 1, the highest quality rating the agency bestows to short-term debt. [3] The agency attributes continuing improvements in the Town's financial results to "more conservative budget forecasts, the Town's ongoing efforts to streamline operations, and recent land sale revenue that has been used to redeem outstanding obligations and reimburse the general fund for prior debt payments on behalf of SWMA." [4]

This fiscal progress was confirmed by the Office of the New York State Comptroller ("Comptroller's Office"). In October of FY 1999, the Comptroller's Office released the Town from its Fiscal Awareness Strategy Team ("FAST") program. Concluding that the Town was no longer experiencing fiscal stress, the Comptroller's Office noted that "the improvement in the Town's financial condition is primarily the result of the difficult choices and decisions [the Supervisor] and the Town Board made when adopting budgets that are structurally balanced." [5]

Still, despite this progress, concerns have been raised about the magnitude of the Town's long-term indebtedness and the proportion of overall expenses dedicated to debt service payments.

The Comptroller's Office recently provided the Town with a report of financial indicators and peer group comparisons with similarly situated jurisdictions on Long Island. The report shows very clearly that the Town's ratio of long-term debt to its population ($1,301.00/person) is significantly higher than the average for its Long Island peer group ($522.00/person). [6]

In addition, Moody's Investors Service notes that debt service payments account "for a very high proportion of the Town's expenditures." [7] In the adopted budget for FY 2000, raw debt service payments in the general fund account for 51.2% of all appropriations, while in the highway fund such payments consume 48.7% of budgeted expenses. [8]

In past years, the Town has used extra-jurisdictional assistance, particularly from the State of New York, to reduce the burden on operating funds to cover debt service expenses. As Figure 2 shows, though, the Town will lose over $2 million in assistance in FY 2001 for the remediation of the Superfund landfill, since the State, for the most part, has fulfilled its obligation to reimburse the Town for these capping and closure expenses. [9]

Figure 2: State Environmental Reimbursements Will Decline by Over $2 Million in FY 2001.


Source: Town Comptroller's Office.

Some have attributed the Town's high debt burden per capita and annual debt service expenses to a recent trend of "excessive" debt issuance. This characterization of the Town's recent debt patterns is not borne out by history. Figure 3 compares the direct capital indebtedness incurred by the Town (not including SWMA) for two historical periods: the five-year period running from 1987-1991 ("period 1") and the six-period running from 1994-1999 ("period 2"). Despite the fact that period 2 is one year longer than period 1, the Town added only $550,258 more in net direct capital indebtedness during period 2 than in period 1, and furthermore, the Town added, on average, $2,500,680 less in net direct indebtedness during each year of period 2 than it added in each year of period 1. If we assume that period 1 is at least reasonably representative of typical debt issuance trends in the Town's history, then the Town's debt practices in period 2 are consistent with historical practices.

Figure 3: Recent Town Debt Issuance Patterns Consistent With Comparable Historical Time-Period

Source: Official Statements of the Town of North Hempstead, various years.

III. What Makes the Last Six Years Different?

What is different about the last six years, however, is the fact that the Town has been obliged to finance, through the issuance of general obligation bonds, substantial land acquisition costs and capital projects related to the Morewood property, the Town transfer station, and the Port Washington landfills.

A. The Required Closure of the L-4 Landfill: The Town operated the L-4 landfill until 1983, when the United States Environmental Protection Agency ("USEPA") placed the site on the National Priorities List and the New York State Department of Environmental Conservation ("NYSDEC") placed the site on the State's Registry of Inactive Hazardous Waste Sites as a Class 2 site. In 1990, the Town entered into a consent order with the USEPA requiring the remediation of the L-4 landfill. The Town commenced this work in 1994, completing the rehabilitation of the L-4 active gas collection system, the implementation of a groundwater remediation plan, and the capping and closure of the landfill by 1997. [10] The total cost of the project was approximately $42 million, with over $15 million coming from NYSDEC in the form of direct assistance. [11] At the close of FY 2001, there will be $14,810,290 in outstanding principal debt remaining for the capping and closure of the L-4 landfill. [12]

B. The Required Closure of the L-5 Landfill: On December 13, 1990, NYSDEC denied the Town's petition to continue landfilling, citing the Long Island Landfill Law and the operational problems that were occurring – at that time – at Field 3 of the L-5 landfill. NYSDEC allowed the Town to postpone the capping and closure of the L-5 landfill while it contoured Field 3 and completed the remediation of the L-4 landfill and the construction of the solid waste transfer station. In May of 2000, the Town Board authorized the execution of a Order on Consent requiring the capping and closure of Fields 1 and 2 by September of 2001 and of Field 3 by July of 2003. At present, there is $1,881,334 in principal debt outstanding related to the capping and closure of the L-5 landfill [13] , and the Town expects to issue $5.5 million of additional debt for this work in FY 2001.

C. The Rapid Elimination of an Accumulated Surplus (1989-1991): NYSDEC's decision to deny the Town's request to continue landfilling municipal solid waste, coupled with the capital expenses associated with the remediation of the hydrogen sulfide odor problems at the L-5 landfill, resulted in a serious deterioration in the financial position of the Town. In the three-year period from January 1, 1989 to December 31, 1991, the fund balance in the Town's general fund fell precipitously from a surplus of $14 million to a deficit of $1.6 million. [14] Any revenue accumulated over the years from the operations of the L-5 landfill was used not for the capping and closure of the L-4 landfill, but to cover shortfalls in the operating budgets of the Town.

D. The Required Construction of a Transfer Station: In addition to requiring the capping and closure of the L-4 and L-5 landfills, NYSDEC also directed the Town to enter into a consent order to undertake the construction of a new municipal solid waste transfer station. The Town completed the construction of the transfer station in the fall of 1996. At the end of FY 2001, there will be $9,136,558 of principal debt outstanding for the financing of the construction costs of the transfer station. [15] It should also be noted that the transfer station was sized, and floor-space calculations were made, assuming that "flow control" would be upheld by the Courts. The loss of flow control in 1994 resulted in a substantial loss of commercial waste and revenue to the Authority.

E. The Purchase by SWMA of the Morewood Property: Anticipating the closure of the remaining Port Washington landfill, the Town's Solid Waste Management Authority purchased the 460-acre former Morewood property in 1988 for $33.1 million ostensibly to construct a mass-burn incinerator. With subsequent refinancing, the cost to SWMA of this purchase reached approximately $73 million. [16]

F. The Purchase of the Morewood Property from SWMA by the Town's General Fund: The Town issued $28,500,000 in bond anticipation notes ("BANs") in 1996 and $15,200,000 in BANs in FY 1997 to finance the purchase of approximately 200 acres of the Morewood property from SWMA in order to construct the Harbor Links golf complex (the Authority is not empowered by State statute to improve its property for a recreational use). The Town included $43,700,000 in Morewood acquisition BANs as part of the advance refunding long-term bond issue in FY 1998. [17] By the conclusion of FY 2001, the Town will still have $41,040,000 in principal debt outstanding for the acquisition of the Harbor Links property from SWMA. [18]

G. The Construction of the Harbor Links golf complex on the former Morewood property: After the former Morewood property was purchased from SWMA by the Town's general fund, the Town commenced construction of an 18-hole championship golf course, a 9-hole executive course, a driving range, and a miniature golf course, as well as undertaking the stabilization of the Morewood bluffs (mandated by NYSDEC) and establishing of the entire supporting utility infrastructure. At the end of FY 2001, there will be $26,561,488 of principal debt outstanding for the construction, remediation, and utility work undertaken on the former Morewood property. [19]

The Town has a debt per capita ratio above the average of comparable jurisdictions on Long Island, and debt service payments consume nearly half of overall general fund and highway fund expenses. These indicators of the Town's debt and debt service payments have been considered by some to be a cause for concern. Such concerns, though, must be placed in the proper context. Though cautioning the Town about its high debt service ratios, Moody's Investors Service also notes that the Town's "debt levels fall in line with averages, and future capital spending should remain manageable." [20] The Town's recent net debt issuance patterns are consistent with comparable time periods in the Town's history. Moreover, a substantial amount of recent debt issuance can be attributed to mandated and necessary projects related to the Port Washington landfills, the construction of a new solid waste transfer station, the acquisition of 200 acres of the former Morewood property from SWMA by the general fund, and the construction of the Harbor Links golf complex (together the "Port Washington Environmental and Recreational Projects"). Figure 4 illustrates the degree to which these projects account for the Town's total outstanding principal debt and annual debt service payments.

As Figure 4 demonstrates, two-thirds of all of the outstanding principal debt in the Town's general fund ($96,779,233 of $145,571,963) is a result of the Port Washington environmental and recreational projects financed over the last decade, but principally over the last six years. In addition, in the FY 2001 budget, nearly half of all of the general fund's debt service payments ($8,520,067 of $17,334,367) will go to pay the principal and interest obligations of these projects.

Figure 4: FY 2001 General Fund Outstanding Principal Debt and Debt Service Payments (Comparison of Port Washington Environmental and Recreational Projects to All Other Projects).


Source: 2001 Debt Service for L-4, L-5, Transfer Station, and Morewood Property, document produced by Town's Comptroller's Office, dated August 1, 2000.

These are two implications of these ratios. First, with two-thirds of all outstanding principal debt tied to the Port Washington environmental and recreational projects, and with recent net debt issuance patterns consistent with comparable periods in the Town's history, other Town infrastructure upgrades, repairs, and replacements have been forestalled or postponed. With the value of our fixed assets assessed at $165,709,800 [21] , the Town will need to redirect capital resources away from these projects and toward other Town assets, such as its parks system and its general facilities, as well as towards critical environmental work recommended by the participants in the Hempstead Harbor and Manhasset Bay protection committees. [22]

And second, with the exception of the capping and closure of L-5, the Town has ostensibly completed the Port Washington environmental and recreational projects. And except for the final $5.5 million bond authorization needed to fund the remediation of the L-5 landfill, almost all of the authorized debt related to these projects has been issued and is therefore included in the Town's debt and debt service projections. [23] This is important. It means that as long as the Town's future debt issuance remains controlled, the Town's total outstanding debt and its annual debt service obligations will begin to fall - and fall substantially - in the coming years. Therefore, precisely because almost all of the funds have been borrowed to finance the acquisition, construction, and improvement costs of the Port Washington environmental and recreational projects, the Town will begin to realize annual reductions in its debt service obligations in the general fund and highway fund. It is these reductions that will comprise the core of our debt management proposal.

IV. Alternative Approaches to Debt Management

Before developing the details of our proposed debt management plan, it is important to address two alternatives that have been presented for consideration to the administration: the "level debt" and the "pay-as-you-go" strategies.

One recommended approach to debt management suggests adopting a strategy proposed by Nassau County Comptroller Fred Parola to deal with the substantial debt burden carried by Nassau County. The failing condition of the finances of Nassau County warrants no discussion. As of February 2, 2000, Nassau County had $2,526,373,858 of net debt outstanding. [24] Moody's has pointed out that the overall debt burden of North Hempstead property owners (as a percentage of the full valuation of the property of the Town) reflects substantial overlapping debt with Nassau County (overlapping debt is the share of the debt issued by Nassau County that is borne by the taxpayers of the Town of North Hempstead). [25] In that context, and in the context of the County's declining bond rating, County Comptroller Parola proposed restructuring debt payments in Nassau County by, in effect, leveling and extending them out, thereby offering immediate, short-term debt service relief. We submitted this proposal to our financial advisors, Evensen Dodge, Inc. ("Evensen Dodge"), to evaluate and to determine the applicability of such an approach in the Town of North Hempstead.

In the view of Evensen Dodge, the Town already takes advantage of amendments to the local finance law that allow municipalities to use a "level debt method" to structure its bond issues; therefore, "the Town has consistently achieved the benefits that the County now seeks." [26] Evensen Dodge further argues that restructuring Town debt simply to realize short-term debt service relief is not an attractive option for the Town under present market conditions:

With long-term interest rates at approximately 5.75% for a 15-year, A-rated credit, the Town currently has no outstanding bonds that are refunding candidates. To its credit, the Town has been diligent in its pursuit of refunding opportunities over the last eight years when interest rates were low. Advance refundings were transacted in 1992, 1993, 1998, and 1999, resulting in significant debt service savings for the Town. We also note that the rating agencies generally look with disfavor on debt being restructured to extend its term. For a jurisdiction to do so might suggest fiscal distress. [27]

The last point is critical. The Town has undertaken advance refundings of its debt in the past in order to take maximum advantage of differentials in interest rates; such an approach reduces the net present value of the total principal and interest of the refunded debt. The proposal offered by County Comptroller Parola looks to restructure the County's debt in order to generate a short-term savings in debt service payments, not to generate an overall net present value savings (because the interest rate differential will not allow it). He offers such a proposal precisely because Nassau County is in fiscal distress. The Town of North Hempstead has A-level credit and just received a bond rating increase last year for the first time in twenty-nine years. Last October, the Office of the New York State Comptroller declared that the Town is no longer experiencing fiscal stress, as it had in past years when its major funds were running considerable deficits. Therefore, restructuring the Town's debt to achieve short-term relief from debt service payments will send the wrong signal to the ratings agencies while costing the taxpayers more money in the long run. Given our improved financial condition, this approach to the management of the Town's debt is neither necessary nor advisable.

A second approach to debt management in North Hempstead has also been advanced this year. This approach argues against virtually all debt issuance, supporting instead a "pay-as-you-go" plan to finance the cost of traditional capital projects. There are some obvious advantages to the "pay-as-you-go" approach. It is conservative to the extent that capital projects are authorized only when sufficient funds are available in the operating budgets to finance them through completion. In this way, debt issuance is dramatically curtailed. But in a Town with a budget of $70 million and with fixed assets valued at over $165 million, a "pay-as-you-go" plan for debt management simply is not feasible, and in many respects it is potential source of fiscal danger.

B.J. Reed and John W. Swain, authors of Public Finance Administration, offer this critique of the "pay-as-you-go" strategy for financing capital projects:

The disadvantages of pay-as-you-go can be substantial. Many capital items would never be acquired or replaced because funding is simply not available within existing resources of an organization. In this sense, "pay-as-you-go" discriminates against larger expenditures. In small organizations or where the capital item is expensive, the pay-as-you-go approach can create much greater fluctuations in the budget expenditures from year to year and can also create fluctuations in the revenue load of the organization's supporters….In addition, the concept of intergenerational equity is violated with a pay-as-you-go approach. This means that those who benefit from the item are not necessarily the ones who finance the asset. [28]

Advocates of the "pay-as-you-go" approach to debt management in North Hempstead respond to this type of criticism by urging the Town to draw down on its positive fund balance to finance necessary capital work. The problem with this response is that it fundamentally misunderstands both the nature and the purpose of the Town's surplus.

Totaling approximately $4.5 million at the close of FY 1999, the Town's surplus is cumulative across its three major funds (the general fund, highway fund, and part-town fund) and SWMA. The surplus is situational, not structural. That is, the Town's cumulative surplus is the result of conservative budgeting in the context of favorable economic conditions; the Town is not guaranteed on an annual basis to attract revenue that exceeds its expenses. Further, the purpose of maintaining positive fund balances, within certain levels, is to accumulate a reserve to cover unanticipated revenue shortfalls or expenditure overages. Considered aggregately, the Town's positive fund balance as of FY 1999 is equal approximately to 6.62% [29] of the Town's total budgeted expenses in FY 2000, a ratio that is consistent with the recommendation of the rating agencies. [30]

Given the situational nature of the Town's surplus, and given the objective of maintaining positive fund balances equal to 5% to 10% of total expenses, it would be imprudent and, in fact, fiscally irresponsible to draw excessively on the Town's accumulated positive fund balance to finance capital projects, particularly those with an extensive useful life. Doing so will increase the probability of running operating deficits, requiring tax increases, and inviting criticism from the rating agencies.

V. The Town of North Hempstead Debt Management Plan

The proposed Town of North Hempstead Debt Management Plan ("DMP") starts with the following three premises.

Ø First, the Town is, generally speaking, fiscally well-positioned, with surpluses in all of its major funds and a recent bond rating upgrade.

Ø Second, the Town has high ratios of outstanding debt per capita and debt service obligations as a function of overall expenses, though its debt levels are in line with medians and its recent history of net debt accumulation is consistent with comparable periods in the Town's history.

Ø Third, a substantial proportion of the Town's outstanding principal debt and annual debt service payments, particularly in the general fund, are related, necessarily so, to the Port Washington environmental and recreational projects. As a consequence, the Town needs to direct capital resources, in a disciplined manner, to the replacement, refurbishment, or upgrade of its other facilities and larger fixed assets and to environmental projects recommended by the Hempstead Harbor and Manhasset Bay consortiums.

Because the Town is in reasonably strong financial position, a drastic restructuring of the Town's debt, as has been proposed in Nassau County, is not warranted, since its promised short-term debt service relief will come at the cost of an increase in the net present value of the Town's debt service payments while sending precisely the wrong signal to the rating agencies about the Town's fiscal condition. And because the Town has to sustain and support over $165 million in fixed assets and deliver necessary environmental improvements to preserve our waterways, it is simply not advisable, and in fact damaging to the Town's ongoing financial health, to eliminate all debt issuance while relying exclusively on the operating budget to finance improvements to Town facilities.

Instead, the key to fashioning the DMP is to calibrate future debt issuance to the projected annual fall-off of principal debt and, concomitantly, to the anticipated reductions in debt service payments. Put simply, the idea behind the DMP will be to assign maximum targets to annual debt issuance that will allow disciplined debt issuance within the fixed boundaries of targeted reductions in outstanding principal debt and annual debt service payments.

The DMP we propose can be divided into three segments: (1) debt stabilization; (2) debt containment; and (3) debt/debt service reduction.

A. Debt Stabilization

The debt stabilization component of the DMP summarizes and organizes efforts already initiated by the Town to reduce outstanding principal debt and annual debt service payments. The debt stabilization component of the DMP has involved the following strategies: 

- The acquisition of Harbor Links property by Town reduces SWMA debt: In FY 1996 and FY 1997, SWMA used $30.5 million in land sale proceeds from the Town (when the Town acquired land from SWMA to construct the Harbor Links golf complex) to redeem all of its outstanding 1993 Series A Bonds, thereby lowering annual SWMA debt service obligations. 

- The sale of Harbor Ridge Property results in debt defeasance in SWMA: The Town's Solid Waste Management Authority sold 42 acres of Authority-owned land in March of 1998 to a private developer to construct various types of senior citizen housing. The purchase price for the property was $26,350,000, of which approximately $20.5 million was used to pay debt service and to defease SWMA's 1993 Series B revenue bonds. [31] This reduced the total principal and interest payments on the remaining 1993 Series B bonds from $44,714,022 at the end of FY 1998 to $21,576,970 after the defeasance in March of FY 1999. [32] And, because of the structure of the defeasance, the SWMA operating budget received immediate relief from all of its debt service obligations until FY 2004. [33] 

- Two separate advance refundings result in net present value savings in Town debt service payments: The Town undertook two advance refundings of outstanding debt, once in FY 1998 and once in FY 1999, taking advantage of record low interest rates to obtain a net present value savings on principal and interest costs across the Town of $942,001. [34]

- Scaled-back capital plans lead to reduced debt issuance: Once the authorizations were obtained to finance the capital costs related to the Port Washington environmental and recreational projects, the administration scaled back its requests for indebtedness to fund its other capital work. The proposed capital plan for FY 1999 totaled $4,065,000, while the proposed capital plan for FY 2000 equaled $3,955,000. [35] These plans were reduced 73% from the size of the capital plan submitted for FY 1998, the first year in recent history when the Town's capital projects were actually organized into a structured plan. Moody's Investors Service has been apprised of the size of these plans, which is the basis for the agency's assessment that the Town's "future capital spending should remain manageable." [36] 

- Substitutions and consolidated in-house labor reduce reliance on debt issuance: Since FY 1998, the administration has aggressively sought ways of curtailing debt issuance. In the FY 2000 operating budget, the Town included for the first time 2000-series lines for small to medium sized equipment purchases instead of relying exclusively on capital authorizations to finance the acquisition of equipment. Since FY 1998, the administration has put on hold all road reconstruction projects - which are debt-intensive undertakings - and instead utilized Town labor to resurface roads and perform required curb and drainage repairs. The substitution of a resurfacing plan for debt-intensive road reconstruction is a crucial reason why the Town was able to transform the $1,806,207 negative fund balance in the highway fund in FY 1996 to a surplus of $687,666 at the end of FY 1999. [37] And with the consolidation of the Highway Division into the Department of Public Works, the Town will utilize DPW labor to perform the basic grading work for the capping and closure of the L-5 landfill, reducing the estimated indebtedness required to complete this project from $14 million to $6.5 million. [38]

Taken together, these strategies have stabilized and structured the Town's debt issuance patterns by reducing outstanding debt through land sales, lowering annual debt service payments by taking advantage of record-low interest rates, and winnowing annual debt requests to manageable figures. In its remaining two components, the DMP proposes an organization for debt issuance over the next ten fiscal years which, if adhered to, will allow for disciplined debt authorizations while still reducing overall outstanding principal debt and annual debt service payments.


B. Debt Containment

The second component of the DMP involves what we call the containment of future debt issuance. By containment, we specifically mean the establishment of a threshold of annual long-term debt issuance by the Town, considered here as a reporting entity [39] , which will lower the Town's exhausted constitutional debt limit from 14.95% to 10.89% over the course of a ten-year period.

The Town (including its component units) [40] has the power to contract indebtedness for any Town purpose so long as the principal amount of the indebtedness does not exceed 7% of the most recent five-year average full valuation of taxable real estate of the Town, subject to exclusions and deductions such as water and certain sewer facilities and cash appropriations for current debt service. [41]


According to the Town of North Hempstead Official Statement issued in October of 1999 (the statement upon which this component of the debt management plan was based), the average five-year full valuation of property in the Town was $25,281,257,692, while the Town's constitutional debt contracting limit was 7% of the average five-year full property valuation, or $1,671,220,187. [42] With net direct indebtedness in the Town equal to $249,920,801, the Town's exhausted constitutional debt, at the time of the publication of this version of the Official Statement, was 14.95%. [43] This figure is slightly above the average exhausted constitutional debt limit of 12.54% for the Town's Long Island peer group, a selection of comparable towns determined by the Office of the State Comptroller. [44]


The objective of this component of the DMP is to bring the Town's percentage of its exhausted constitutional debt limit below the average for comparable jurisdictions on Long Island - to 10.89% - over the course of a ten-year period. Appendix A includes the spreadsheet specifying the year-to-year targets of the Debt Containment component of the DMP. Assuming – conservatively - that the average five-year full valuation of property in the Town remains constant, Appendix A shows the Town can accomplish its goal of reducing its exhausted constitutional debt limit to 10.89% despite issuing up to $14 million in new debt in FY 2001, up to $10 million in new long-term debt from FY 2002 to FY 2006, and up to $7,500,000 in new debt each year from FY 2007 through FY 2010. [45]


Table 1 summarizes the ten-year effect of the Debt Containment component of the DMP. Assuming that the Town (including its component units) were to issue new debt as specified above, and assuming conservatively that this debt would carry a 15 year PPU [46] and amortize at an interest rate of 6.0%, [47] the Town will still realize a reduction in outstanding principal debt of $106,863,964, or 37.02%, by the end of FY 2010. This represents a considerable reduction in outstanding principal debt while still facilitating a reasonable amount of average annual debt issuance by the Town and its component units.


By generating this substantial reduction in outstanding principal debt over a ten-year period, the Debt Containment component of the DMP will reduce the Town's debt level to 0.72%, which would place the Town's debt level below the median of comparable jurisdictions, at least as this median is set today. The DMP will also reduce the debt per capita in the Town from $1,301.00 to $855.00, which is much closer to the average for the Town's peer group.

Table 1: Summary of Ten-Year Impact of the Debt Containment Component of Town of North Hempstead Debt Management Plan.

Source: Appendix A of Town of North Hempstead Debt Management Plan.

Two points must be kept in mind.

First, assuming its affirmation by the electorate this November, any debt issued in relation to the Environmental Legacy Fund ("ELF") will count against the limits established in the Debt Containment component of the DMP, since all general obligation bonds issued by the Town, whether supported through additional taxes or not, exhaust part of the Town's constitutional debt-contracting limit. Therefore, the financing of the projects pursued through ELF will be governed by the targets established as part of the Debt Containment proposal. To be conservative, the Debt Containment Component of the DMP assumes that the ELF will be approved by the voters this November and that the Town will issue $2.5 million of ELF debt each year from FY 2001 through FY 2006.

And second, the Debt Containment component of the DMP applies to all of the component units of the Town of North Hempstead, excluding water district and certain sewer district projects. However, it is important to note that revenue bonds issued by the Solid Waste Management Authority do not count against the constitutional debt limit of the Town. [48] It is also important to note that many of these component units are commissioner-operated special districts, with duly elected Boards of Commissioners responsible to their own voting constituencies. Though the finances of the Town, as the primary government in the North Hempstead reporting entity, are interconnected in many respects with the finances of these component units, it is unwise to interfere with the basic operations of these units, so long as their operations comply with the law. It is our recommendation, then, that the Town consider the targets established by the Debt Containment component of the DMP to be "soft" targets - that is, targets with some modest flexibility to accommodate the special or particular capital needs of the commissioner-operated special districts that comprise the North Hempstead reporting entity.

Having said this, we still propose that the Town require, as a condition for approving any debt issuance requested by commissioner-run special districts, the submission on an annual basis of five-year capital budgets to accompany the submission of their annual operating budgets. With capital budgets from each of the commissioner-run special districts, the Town will be able to coordinate borrowing plans to take advantage of favorable market conditions as well as utilize Environmental Facilities Corporation ("EFC") zero-interest and low-interest loans to lower the net interest costs of eligible borrowings.

C. Debt and Debt Service Reduction (Town Operating Funds)

The third component of the Town of North Hempstead Debt Management Plan focuses specifically on securing targeted reductions in generally supported principal general obligation debt and annual general obligation debt service payments in the Town's major operating funds: the general fund and the highway fund. [49] The part-town fund, by comparison, is very small and has no outstanding debt, so it is not factored into this analysis.

The Town's operating funds are directly within the control of the administration and the Town Board. And when discussion centers on the Town indebtedness, it is these funds that are at the center of the scrutiny of the rating agencies, the public, the press, and government officials. Therefore, we believe that the core of the DMP must address the accumulation of debt and the ongoing debt service payments in these two Town funds.

Table 2: Present Serial Bond Debt Service Obligations in the Town's General Fund and Highway Fund (FY 2000 - FY 2010).

Source: Town of North Hempstead: Summary of Serial Bond Maturity by Fund, document prepared by the Town Comptroller's Office, dated August 21, 2000. This table assumes no new debt issuance between FY 2000 and FY 2010.

The key to developing this component of the DMP is found in Table 2. This table highlights considerable reductions in the debt service obligations of the Town's general fund and highway fund each year between FY 2000 and FY 2010, assuming that no additional debt is issued during that time period. The primary reason for these reductions is that the Town's need to issue general obligation indebtedness has peaked: almost all of the requisite financing for the Port Washington environmental and recreational projects has been both authorized and issued. Over the next ten years, there will be average annual reductions in general fund debt service of $627,729 and in highway fund debt service of $514,647. We propose taking advantage of this fact to obtain debt and debt service relief over the next ten years while still permitting the Town to issue controlled amounts of debt to address the upkeep, improvement, or replacement of its substantial fixed assets.

The General Fund

Appendix B presents the Debt and Debt Service Reduction Plan for the Town's general fund. Starting in FY 2000, the plan establishes a targeted reduction of 1.5% in annual debt service payments or a 15.0% reduction in aggregate debt service obligations for generally supported debt by FY 2010. On average, the Town can achieve these annual and aggregate targets over a ten-year period despite issuing $7,420,000 in new debt in FY 2001 and no more than $2,000,000 in new principal debt each year from FY 2002 to FY 2010. This debt is assumed to carry a 15-year PPU and amortize at a 6% interest rate, which is a conservative estimate of the cost of issuing debt during this time period.

Figure 5: The Debt Management Plan Will Reduce General Fund Debt Service 15.0% by FY 2010.


Source: Appendix B of the Town of North Hempstead Debt Management Plan. Current debt service is debt service if no additional debt is issued between now and FY 2010; projected debt service is the debt service anticipated by issuing $7,420,000 in long-term debt in FY 2001 and $2,000,000 during each subsequent fiscal year; the targeted debt service assumes a 1.5% reduction in annual debt service payments from FY 2000 to FY 2010.

In FY 2001, we project the issuance of $7,420,000 of serial bond indebtedness. This estimate includes: (1) the full $6.5 million cost of capping and closing the L-5 landfill [50] ; (2) $430,000 of previously authorized L-4 and L-5 debt; and (3) $490,000 for all other projects that are presently in note form with greater than a 5-year PPU. It is the administration's intent to apply for EFC zero-interest and low-interest loans that will lower the annual interest cost of the landfill-related debt. Assuming that we are successful in securing EFC loans, the serial bond debt issuance projected for FY 2001 will result in annual debt service payments of, on average, $676,636 for the duration of the time period analyzed in this plan. [51]

Figure 6: The Debt Management Plan Will Reduce Outstanding Net Principal Debt in the General Fund by almost $80 Million.


Source: Appendix B of The Town of North Hempstead Debt Management Plan.

In all likelihood, the Town will not serialize all of this debt in FY 2001 (some of these projects may be able to remain in note form with correspondingly lower interest rates); nevertheless, we believe the most conservative way to present the plan is to account for all of the short-term notes that must be converted to long-term debt as well as for the landfill financing costs, and we further believe that the clearest way to account for this debt is to present it up front and all at once.

As depicted in Figure 5, the Town can issue the full $7,420,000 of serial bond debt in FY 2001 and $2,000,000 in serial bonds each year from FY 2002 to FY 2010 and still incur debt service obligations, annually and aggregately, which fall below the 1.5% annual threshold and 15.0% aggregate threshold of debt service reduction set by the DMP. By FY 2010, the DMP will reduce debt service payments in the general fund by at least $2,713,394. Further, as shown in Figure 6, net principal debt will drop in the general fund $79,836,069 by FY 2010 as a result of the implementation of the DMP. This means that even if the Town were to issue the debt as projected in the DMP, the structured drop-off of older outstanding principal debt, which will exceed the addition of new debt, will result in a 48.72% reduction of the Town's net principal debt in the general fund by FY 2010.

The Highway Fund

Appendix C presents the Debt and Debt Service Reduction Plan for the Town's highway fund. Starting in FY 2000, the plan establishes a targeted annual reduction of 2.5% in debt service payments or a 25% reduction in aggregate debt service obligations for generally supported by FY 2010. On average, the Town can achieve these annual and aggregate targets over a ten-year period despite issuing between $3,000,000 and $3,750,000 in new principal debt each year from FY 2001 to FY 2010. As with the general fund, this debt is assumed to carry a 15-year PPU and amortize at a 6% interest rate.

It should be noted that there are three highway projects presently in note form: projects 701 (snow and ice removal), 710 (road reconstruction), and 721 (road resurfacing). The Town will make its final principal pay-down on project 701 in July of FY 2001, so the Town will never have to issue long-term debt to finance this project. After FY 2001, the outstanding principal on the remaining projects will equal $2,680,000. Therefore, should the Town determine to issue long-term debt to finance these projects after the FY 2000 BANs mature in July of FY 2001, the outstanding principal remaining on these projects will be less than the principal debt target ($3,000,000) established by the DMP, and the projected annual debt service expenses related to these projects (approximately $280,000) is less than the amount assumed in the DMP. [52]

Figure 7: The Debt Management Plan Will Reduce Highway Fund Debt Service 25% by FY 2010.


Source: Appendix C of the Town of North Hempstead Debt Management Plan. Current debt service is debt service if no additional debt is issued between now and FY 2010; projected debt service is the debt service anticipated by issuing $3 million in debt in FY 2001 and between $3.5 and $3.75 million in debt annually from FY 2002 to FY 2010; the targeted debt service assumes a 2.5% reduction in annual debt service payments from FY 2000 to FY 2010.

Figure 7 highlights the effect of the DMP on annual debt service payments in the highway fund. This graph demonstrates that the Town can issue up to $3 million in long-term debt in FY 2001, $3.75 million in long-term debt each year from FY 2002 to FY 2005, and $3.5 million annually until FY 2010 and still keep annual and aggregate debt service payments below the debt service reduction thresholds (2.5% annually, 25% for the next ten years) established for the highway fund by the DMP. By FY 2010, the DMP will reduce debt service payments in the highway fund by at least $2,035,030. Further, as shown in Figure 8, net principal debt will drop in the highway fund $15,214,368 by FY 2010 as a result of the implementation of the DMP. This means that even if the Town were to issue the debt as projected in the DMP, the structured drop-off of older outstanding principal debt, which will exceed the addition of new debt, will result in a 29.71% reduction of the Town's net principal debt in the highway fund by FY 2010.

Figure 8: The Debt Management Plan Will Reduce Outstanding Net Principal Debt in the Highway Fund by over $15 Million.


Source: Appendix C of The Town of North Hempstead Debt Management Plan.

Other Debt and Debt Service Reduction Strategies

The foregoing proposal suggests a framework to govern long-term debt issuance in the Town's general fund and highway fund for the next ten years in order to achieve targeted reductions in net outstanding principal debt and annual debt service payments.

We think it is appropriate, though, to identify some strategies that will contribute to achieving these debt reduction objectives.

Ø The Town should continue the approaches outlined in the Debt Containment component of the DMP, such as seeking advance refundings when interest rates are favorable, securing debt defeasance through additional SWMA land sales, advancing substitutions for debt-intensive projects, and submitting scaled-back annual capital plans.

Ø The Town should gradually reduce its reliance on debt instruments to finance projects with a PPU of five-years or less, and unless the interest rate on long-term debt changes favorably, the Town should keep any such projects in note form. [53]

Ø The Town ought to segregate some funds in the operating budget to finance the cost of small capital projects. We will propose this for the first time - at least in recent history - in the tentative budget for FY 2001. Though the amounts will be modest and the projects necessarily limited in scope, it will be an important step toward financing some of our smaller capital needs without incurring interest costs.

Ø Given the need to discipline capital spending according to the targets established by the DMP, the Town needs to do everything possible to preserve and elongate the useful life of its assets. For example, the administration is reducing the number of authorized take-home vehicles in the Town by 66% in order to lower our insurance exposure, reduce their wear and tear, and forestall the need to obtain funding for their replacement. [54]

Ø The Town should aggressively seek extra-jurisdictional funding, through grants and loans, to offset the cost of capital projects that are mandated, essential, planned, or pertain to the necessary upkeep or improvement of our infrastructure or our environment. We should avoid obtaining grant money for projects that do not fit these criteria and require the Town to provide matching funds. This year, for example, we were able to secure "multi-modal" money from Assemblyman DiNapoli and Senator Balboni to reimburse the Town for road resurfacing, curbing, and drainage work that is being undertaken in FY 2000 and FY 2001. In FY 2001, this funding will reduce interest costs in the highway fund - for roadwork that was already planned - by $91,250. [55]

Ø The Town should always explore alternative financing methods for capital projects. The administration desires to issue an RFP in late fall or early winter to solicit proposals from private companies to finance the construction of, and to operate, a multi-sport bubble at Senator Michael J. Tully Park. The company will recover its financing costs through the revenue generated from the facility. Also, the Department of Administrative Services is reviewing the viability of combining maintenance and fuel savings estimated to be generated from a performance contract with a grant from LIPA to cover the cost of installing a geothermal HVAC system in Town Hall I. [56] These creative approaches to paying for capital projects, if ultimately workable, can reduce the Town's reliance on general obligation indebtedness, thereby contributing to the attainment of debt and debt service reduction targets fixed by the DMP.

VI. Some Caveats to the Debt Management Plan

There are three important exceptions to the Debt Management Plan that require separate discussion: the possibility of unforeseen emergencies, the issue of self-supporting debt, and the reality of legal judgments and settlements (potential and actual) against the Solid Waste Management Authority.

Despite all precautions, emergency or catastrophic situations can always occur. A Town building could collapse; the Morewood slopes could erode; a Town employee could get into an automobile accident that results in injuries or fatalities. Such extraordinary occurrences could cost the Town considerable sums of money. The Town's operating budget does not provide for the reserves necessary to cover the possible cost of these events, so the Town might be forced to issue debt to finance such emergency expenses. Were an emergency to require this type of financing, we recommend that these emergency costs be counted against the debt and debt service thresholds established by the DMP, unless the cost of a catastrophic or emergency occurrence is so prohibitive as to leave the Town no option but to raise additional tax revenue just to pay these expenses, in which case we recommend treating this debt as self-supportive and, as we will now argue, external to the DMP.

Although all general obligation debt issued by the Town must count against its exhausted constitutional debt limit, we recommend against considering self-supporting debt to be limited by the targets established in the Debt and Debt Service Reduction component of the Debt Management Plan. Self-supporting debt refers to any capital project which either (a) raises non-tax revenue sufficient to cover part or all of its annual debt service expenses; or (b) generates tax revenue, pursuant to a public commitment, which covers all of its debt service costs. All other debt is considered to be generally supported debt. [57] For example, were the Town to finance the cost of the construction of a Harbor Links clubhouse (as opposed to securing a private financing option, as is being considered) [58] , the revenue generated by the clubhouse, in excess of its operation costs, would be pledged to cover the expense of servicing its construction debt. It is our recommendation that only the net construction cost of the clubhouse (annual debt service cost less net revenue), if there is a net cost, should be counted toward the annual debt issuance and debt service targets set in the DMP. Additionally, because the Town has committed publicly to financing all of the costs of the Environmental Legacy Fund through additional taxes, it is our view that this debt, and the related debt service expenses, should not be applied toward the debt and debt service thresholds in the DMP. The DMP is not about simply reducing debt; it is about ensuring that the Town has sufficient financial resources to cover its debt and debt service obligations. If a capital project generates revenue to cover its debt service costs, or if the Town determines to raise taxes specifically to cover certain projects, then it is reasonable to segregate these projects from those considered under the umbrella of the DMP.

Finally, it is essential to address the issue of potential legal judgments against, or settlements by, the Town's Solid Waste Management Authority. The Authority's debt has not been a focus of the Debt Management Plan because SWMA revenue bonds do not count against the constitutional debt limit of the Town and because the Authority will not issue additional debt to finance capital projects. In SWMA, land sales have led to the defeasance of revenue bonds that has eliminated the debt service obligations of the Authority's general fund until FY 2004. Any revenue bonds issued subsequently will not be to undertake capital projects but instead will be to settle long-standing litigation involving the Authority.

Presently there are two active cases the resolution of which could result in the issuance of additional – and in one case substantial – revenue bonds by the Authority.

First, the Authority Board voted on August 29, 2000 to authorize the issuance of $580,000 in revenue bonds to settle two cases brought against SWMA by Ebasco Constructors, Inc. and by the Babcock & Wilcox Company. Accordingly, SWMA will incur debt service expenses over the next five years to pay down this bond. We have factored the annual debt service expense of this revenue bond in our projections for FY 2001, so the debt service incurred for this settlement can be paid out of general SWMA operating funds. [59]

The second case is the Sumitomo litigation. This is a case that dates back to a prior administration, during the volatile municipal solid waste market of the early 1990's. In May of 1999, a jury in the New York Supreme Court in Nassau County rendered a verdict affirming the right of the Town to default the operator of its transfer station, but against the Town for a breach of contract. In December of 1999, the Court entered a judgment against the Town, and in favor of the Sumitomo Bank of New York Trust Company, in excess of $28 million. [60] This case is currently on appeal. Outside counsel believes there is a strong case for reversible error, and the fact that the jury ruled in the Town's favor on the issue of our right to default increases the likelihood that the Appeals Court can reverse a judgment in favor of the Town.

Given the potential magnitude of this judgment, the Town would have no choice but to issue debt to finance its payment in the event of an unsuccessful appeal. Assuming alternatively that the appeal is partially successful and the case is remanded to trial, even a settlement of the Sumitomo case would require the issuance of debt in order for the Town to fund potential payment amounts.

The Debt Management Plan is intended to deal with controllable debt – that is, debt for which the Town has the option of issuance. Because the outcome of the Sumitomo case is beyond the control of the Town, and because the Town does not have operating funds sufficient to cover possible debt service payments for the Sumitomo case, it is our view that this issue, though important, should be treated as external both to the Debt Management Plan and to our current operating budget. [61]

VII. Conclusion

Even with the fiscal progress realized over the last few years, the Town's debt remains an area of focus for the administration and for the Town Board. Debt levels are in line with comparable medians, but the Town's overall debt is high and debt service obligations in the Town's general fund and highway fund constitute a large proportion of overall expenses.

The Town of North Hempstead Debt Management Plan addresses these concerns in three ways: it outlines debt stabilization strategies already undertaken by the Town, it puts an outer threshold on annual new debt issuance in order to achieve a goal of reducing the Town's exhausted debt contracting limit, and it establishes maximum debt issuance targets in the general fund and highway fund necessary to achieve annual and aggregate reductions in unsupported debt and debt service payments between FY 2000 and FY 2010.

In order to insure that the Town remains on track to reach its reduction targets with respect to its exhausted debt limit, outstanding debt, and annual debt service payments, we recommend that the Town Board require a formal review of the DMP on an annual basis, perhaps on the anniversary of its adoption by the Board.

It is our view that with debt issuance disciplined by this debt management plan, the Town's debt and debt service reduction targets are very much within reach.



[1] By generally supported indebtedness, we mean debt for which annual debt service payments are made from general Town revenue (including taxes) and not from (a) revenue generated specifically by the improvement financed by the debt or (b) taxes raised specifically to cover the amortized cost of the debt. Debt for which either condition (a) or condition (b) holds is called self-supporting debt. This issue is addressed more fully in Section VI.

[2] Moody's Investors Service New Issue Report, published, April 9, 1999, p.1.

[3] Moody's Investors Service New Issue Report, published October 15, 1999, p.1.

[4] Ibid.

[5] Letter from the Office of the State Comptroller to Supervisor Newburger, dated October 18, 1999.

[6] Letter from the Office of the State Comptroller to Comptroller Michael Haran, dated July 17, 2000. The peer group includes the towns of Babylon, Hempstead, Huntington, Islip, Oyster Bay, and Smithtown. These figures are for FY 1999, though it should be noted that the Town's outstanding debt per capita ratio was adjusted to reflect the fact that $16,515,000 of outstanding principal debt matured in FY 1999.

[7] Moody's Investors Service New Issue Report, published October 15, 1999, p.1.

[8] By "raw debt service payments," we mean the debt service interfund transfer obligations of the general fund prior to reimbursement of the debt service reserve fund by various forms of extra-jurisdictional assistance, primarily from New York State. See the adopted FY 2000 budget of the Town of North Hempstead, pp. GF 1, HF 1, and S1.

[9] The Town does anticipate recouping approximately $800,000 as retainange release from the L-4 landfill closure and remediation projects.

[10] The Superfund Landfill Clean-Up: A Progress Report, brochure published by the Office of the Town Supervisor, dated 1997; Official Statement of the Town of North Hempstead, dated July 11, 2000, p. A-23.

[11] L-4 Landfill Remediation Project: State Assistance Contract Reimbursement Summary, memo from Commissioner Miner to Director of Operations Gianelli dated June 27, 2000.

[12] 2001 Debt Service for L-4, L-5, Transfer Station, and Morewood Property, document produced by Town's Comptroller's Office, dated August 1, 2000.

[13] Ibid.

[14] Audits of the Town of North Hempstead, 1989-1991.

[15] 2001 Debt Service for L-4, L-5, Transfer Station, and Morewood Property, document produced by Town's Comptroller's Office, dated August 1, 2000.

[16] The Fiscal Effects of Morewood, information pamphlet produced by the Office of the Supervisor, dated 1997.

[17] Direct Capital Indebtedness: 1987-1998, document produced by the Town Comptroller's Office.

[18] 2001 Debt Service for L-4, L-5, Transfer Station, and Morewood Property, document produced by Town's Comptroller's Office, dated August 1, 2000.

[19] Ibid.

[20] Moody's Investors Service New Issue Report, published October 15, 1999, p.1. The Town's debt level of 1.10% is a ratio of its outstanding principal debt to the average five-year full valuation of property located in North Hempstead. It is this figure which, in the view of Moody's, falls in line with acceptable medians.

[21] Town of North Hempstead General Purpose Financial Statements, year ending December 31, 1998, pp. 13.

[22] See the Capital Plan submitted by the Department of Planning and Economic Development for FY 2001-FY 2005.

[23] It should be noted that the Town may be required to "remedy" the Southport Well and that the Town is presently in negotiations with USEPA to settle the cost of its engineering oversight of the L-4 landfill. Both of these matters will require capital authorizations.

[24] Official Statement of the Town of North Hempstead, dated July 11, 2000, p. A-15.

[25] Moody's Investors Service New Issue Report, published October 15, 1999, p.2.

[26] Memo from Richard Tortora, Esq., to Town Comptroller Michael Haran, dated April 4, 2000.

[27] Ibid.

[28] B.J. Reed and John W. Swain, Public Finance Administration (Second Edition), Thousand Oaks, CA: SAGE Publications Inc., pp. 241-242.

[29] Fund Balance Data (1999) – Four Major Funds, spreadsheet prepared by Director of Operations Gianelli.

[30] Standard & Poor's Public Finance Criteria: 1998, pp. 55. Standard & Poor's maintains that a 5% ratio of fund balance to total expenses is generally considered as a healthy level for municipalities.

[31] Memo from Town Comptroller Michael Locorriere to Richard Tortora, Esq., and James Moyer, Esq., dated July 16, 1998.

[32] Official Statement of the Town of North Hempstead, dated July 11, 2000, p. A-17.

[33] Ibid.

[34] Summaries of Refunding Results dated April 1, 1998 and April 20, 1999; The Town, in this instance, refers to North Hempstead and its component units, considered collectively as a reporting entity. See footnote 39.

[35] Memo from Director of Operations Gianelli to the Town Board, dated December 9, 1999; memo from Director of Operations Gianelli to Supervisor Newburger, dated December 14, 1998. These plans encompassed all funds and Town-operated special districts.

[36] Moody's Investors Service New Issue Report, published October 15, 1999, p.1.

[37] Fund Balance Data (1999) – Four Major Funds, spreadsheet prepared by Director of Operations Gianelli.

[38] Memo from Commissioner Miner to Director of Operations Gianelli, dated November 18, 1999; memo from Director of Operations Gianelli to the Members of the Town Board, dated December 7, 1999.

[39] From an accounting perspective, the Town is the primary government of the Town of North Hempstead reporting entity, which consists of (a) the primary government; (b) the organizations for which the primary government is financially accountable; and (c) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. The Town of North Hempstead reporting entity includes the Solid Waste Management Authority, all of the Town-run and Commissioner-run special districts, and the Town of North Hempstead Community Development Agency. See the Town of North Hempstead General Purpose Financial Statements, year ended December 31, 1998, pp. 5-6. Please also see GASB Statement Number 14, a summary of which can be found at the following website: http://www.nysscpa.org/prof_library/GASB/gasb14.htm.

[40] The Town's component units are the organizations included as part of the Town of North Hempstead reporting entity.

[41] See the Official Statement of the Town of North Hempstead, dated July 11, 2000, page A-9.

[42] See the Official Statement of the Town of North Hempstead, dated October 21, 1999, pp. A10-A11. Unless otherwise noted, all figures incorporated into the debt containment component of the DMP are derived from this edition of the Official Statement.

[43] Ibid.

[44] Letter from the Office of the State Comptroller to Comptroller Michael Haran, dated July 17, 2000. The peer group includes the towns of Babylon, Hempstead, Huntington, Islip, Oyster Bay, and Smithtown.

[45] The $14 million debt issuance target for FY 2001 assumes that the Town will serialize all present note debt with PPUs greater than five years and that the Town will issue $2.5 million in debt pursuant to the passage of the Environmental Legacy Fund. The $10 million debt issuance targets for FY 2002 through FY 2006 assume that the Town will issue $2.5 million of Environmental Legacy Fund debt each year until the bond authorization is exhausted.

[46] "PPU" stands for period of probable usefulness, which establishes the maximum period in which the principal for a bond issue can mature. The periods of probable usefulness of various types of capital projects are defined in the local finance law.

[47] Interest rates on long-term debt run currently anywhere between 4.43% and 5.32%.

[48] This becomes important when we deal with the Sumitomo litigation in Section VI of this plan.

[49] Section V.C of the DMP deals only with generally supported debt. See also footnote 1 and Section VI of the DMP.

[50] This assumes that the Town will be denied in its application for up to $2 million in assistance from the New York State Department of Environmental Conservation to offset the capping and closure costs of L-5.

[51] Debt service schedules produced by Evensen Dodge, Inc., dated August 14, 2000. In addition to the landfill financing costs, Project 530 (various parks/playground improvements) must be converted from short-term notes to long-term debt. All other general fund projects will remain in note form.

[52] 2001 Paydowns and Interest Due on Outstanding BANs (All Funds), document produced by Evensen Dodge, Inc., dated August 4, 2000. Town of North Hempstead $2,689,000 Various Purpose Serial Bonds: Highway Fund Projects Only, document produced by Evensen Dodge, Inc., dated August 14, 2000.

[53] The Town has already made this commitment to Moody's Investors Service.

[54] Take Home Vehicles, memo from Director of Operations Gianelli to the Receiver of Taxes, Town Clerk, and Department Heads, dated August 11, 2000.

[55] Town of North Hempstead 2001 Paydowns and Interest Due on Outstanding BANs (All Funds), document prepared by Evensen Dodge, Inc., dated August 4, 2000.

[56] Performance contracts are not considered municipal debt instruments.

[57] See footnote 1.

[58] Parks Plan, memo from Director of Operations Gianelli to Supervisor Newburger, dated June 9, 2000; Questions for Today's Meeting, memo from Director of Operations Gianelli to Robert Smith, Esq., of Hawkins, Delafield & Wood, dated June 2, 2000.

[59] Town of North Hempstead Official Statement, dated July 11, 2000, pp. A-23.

[60] Ibid., pp. A-22.

[61] It should be noted that Moody's Investors Service is aware of the status of the Sumitomo litigation and the Town's contingent liability. Should the Town be required to pay the full judgment, it is the agency's view that "this factor alone would not impact the Town's current rating." See Moody's Investors Service New Issue Report, published October 15, 1999, p.3.