The fiscal stability of Mount Vernon was thrust into headlines after news broke Tuesday evening that Moody’s Investor Service had withdrawn the city’s credit rating weeks prior. On January 2nd, the bond rating agency’s New York office tersely announced it had “withdrawn the ratings on Mount Vernon, NY due to insufficient information.”
News of the revocation has been overshadowed by the latest wave of scandals and controversies that have been dominating local headlines in recent weeks. Now, nearly three weeks later, residents are struggling to get up to speed on the arcana of municipal finance, and a number of questions are begging to be answered.
Why was the city’s credit rating withdrawn, in the first place?
What impact will it have on the city’s ability to borrow money?
What needs to be done to get the city’s credit rating reinstated?
Finally—and perhaps most importantly—how much time is left before irreversible damage is done to the city’s finances?
With the election that’ll determine the next mayor set to begin in months, questions about the solvency of the city’s finances are sure to take center stage as the campaigning heats up in the days ahead. Sadly, sorting through these complex questions is compounded, immeasurably, by the fact that the leadership of the current administration, starting with Mayor Thomas himself, has shown no qualms about spinning fact into fiction wherever its suits their purposes. More misstatements are sure to come out of Roosevelt Plaza as Thomas tries to paper over the massive problems he now confronts, including an upcoming criminal trial where he’s facing multiple counts of criminal wrongdoing. Indeed, word that the Mayor beefed up his communications team by hiring former LoHud reporter Ernest Garcia, suggests the spin machine is preparing to go into overdrive as the disgraced mayor limps into the final year of his first term.
To disentangle these questions from the self-serving distortions for which the Mayor is now notorious, Black Westchester conducted an independent investigation of these matters, which entailed a review of relevant legal filings, along with the solicitation of insights from independent, outside experts at Moody’s and the Office of the Comptroller of New York State. However, the appropriate starting point for this discussion ought to begin with an assessment from city’s chief financial officer, Comptroller Deborah Reynolds.
Late last week, as a criticism of Mayor Thomas’s latest missteps continued to mount, lawyers for Comptroller Reynolds submitted a letter on January 11th to the Westchester Supreme Court in the latest round of her legal battle with the Mayor for control of the city’s finances. Overseen by Judge Susan Cacace, the current proceeding combines three separate article 78 proceedings that Mayor Thomas brought against the Comptroller’s office over the past several years—starting with a suit he filed after a request to pay for a new SUV, rumored to be for the use of Deputy Police Commissioner Joe Spiezio, went unpaid by Reynold’s predecessor, former Comptroller Maureen Walker
Though it slipped under the radar at the time, the letter offers an alarming appraisal of the city’s finances.
After several face-to-face meetings failed to resolve the impasse, attorney Jay Hashmall informed Judge Cacace that he had personally warned Jefferey Buss—longtime personal attorney for Joe Spiezio, who as outside counsel for the Mayor, is the recipient of city’s largesse—that any further delay threatened passage of the 2019 budget and could end with “the Mount Vernon taxpayers suffer[ing] irreparable harm.”
Because the city cannot collect taxes until the budget has been approved, Hashmall continued, “[s]imilar to Washington, D.C., Mount Vernon will have to close down for business and will run out of money.”
If Reynolds is correct, the impasse could end in a landslide that’ll leave the city buried under a mountain of debt before the mayor even has time to clear out of office.
While news of the city’s financial troubles took most residents by surprise, dire prognostications about the deterioration of the city’s finances are hardly new. In late December, Reynolds provoked a bout of handwringing during her first end-of-year financial report. Speaking before a packed audience that had gathered in the council chambers at City Hall, Reynolds predicted that continued wrangling between herself and the Mayor over control of the city’s books, would make it impossible for her office to file the city’s financial statements with outside agency’s in a timely manner. A hush fell over the chamber after Comptroller Reynolds revealed she had received a troubling notice from a Moody’s analyst earlier in the day: “An email from Moody’s stated that if the URA [Urban Renewal Agency] audits oversaw by the Mayor for 2016 and 2017 are not filed by January 1st 2019, the city’s credit rating will negatively be affected, and the city will possibly lose its state funding as well.”
Video courtesy of Jamie Pessin Productions
Comptroller Reynolds blunt assessment of the city’s finances had been some time in the making. David Jacobson, Vice President of Communication for Moody’s Public Finance Group, recently informed BW that “[o]n November 30, we announced that we were missing sufficient and current financial information from the city, and if we did not receive it within 30 days we could withdraw the rating.” But due the fact that the Comptroller’s presentation left much to be desired, her claim was greeted with skepticism by some Thomas loyalists who were in the audience. Less than two weeks later, though, just as she had stated, the city’s credit ratings was withdrawn on the first day of business of the new year.
Perhaps that’ll give a pause to anyone who’s quick to dismiss the bombshell that followed moments later. “The city will run out of money in May of 2019,” Reynolds announced, which “would be disastrous” (18:20).
When contacted for comments about the Comptroller’s forecast, outside experts declined to offer an authoritative assessment without conducting a full audit of the city’s finances first. Inquiries about the credit withdrawal were directed to Comptroller Reynolds, but they remained unanswered at the time of publication. However Brian Butry, spokesman for the Office of State Comptroller Thomas Dinapoli, did note that the OSC “generally warn[s] municipalities about the link between their bond rating and the increased cost for borrowing should their credit rating decline.”
At the moment, the city’s finances are looking bleak, to say the least. However there are steps that can still be taken to avert the catastrophe that Comptroller Reynolds warned of. Moody’s Vice President pointed to three possible pathways which would eventually take the city back to financial solvency.
If the impasse remains unresolved, one option would be for the city to be issued unrated debt, which would peg Mount Vernon bonds as a greater investment risk, only likely to attract lenders willing to gamble their money in the hope of higher returns. Joe Spiezio owns a private equity firm—Pinnacle Equity—so perhaps he’ll expand his holdings beyond the Mayor’s office and have the rest of the city in hock before it’s all over.
Remember: that’s precisely what happened the majority-Black town of Opa-locka, Florida; a bunch of sharp-eyed, deep-pocketed businessman from out of town, including Spiezio, financed a shadow government, fronted by a network of local Black political operatives who helped siphon off tens of millions of dollars from the city’s coffers. Left the city teetering on the edge of bankruptcy, before law enforcement officials put a stop to crime spree. Concerns are growing that Mount Vernon will be the next Black city that is left in the red.
Another option is for the city to seek a rating from a different rating agency, though the city would still have to submit full financials in order to be properly rated.
Lastly, Jacobson writes: “The city could supply us with the information and we may restore a rating in the future; I have seen this happen before. That is up to the city.”
Luckily, as this article was going to press the Board of Contract and Estimate took the first step to resolve the crisis by announcing that a public hearing will be held next Tuesday, January 22nd, to review the 2019 budget.
Whatever the outcome, it remains to be seen whether Mayor Thomas will submit the outstanding audits for the Urban Renewal Agency.
To bond, or not to bond? Why is that the question?