$522.5M Hempstead budget to dip into reserves again

The Hempstead Town Board adopted a $522.5 million budget for 2024 that will once again dip into reserves  to close a deficit. 

The budget, approved by a 7-0 vote on Tuesday, increases spending by $18.4 million from the current year's $504.1 million. The town expects to use about $56 million in reserves to balance the budget, up from the $50 million it planned to use from reserves in 2023, town comptroller John Mastromarino said. The comptroller said the actual amount of reserves used this year could turn out to be $40 million. The 2021 budget relied on $20 million of reserves to close the deficit.

The town’s reserves had been greater than $200 million going into this year, Mastromarino said. The drawdown will leave reserves at about 25% of expenditures, he said. With a $522.5 million budget that’s about $130 million.

Town Supervisor Dan Clavin said the spending plan does not raise taxes, telling one resident at the budget hearing, “I know you’re excited about the tax freeze.”

The overall tax levy will increase slightly from $344.7 million this year to $346.8 million in 2024, according to budget documents, a 0.6% year-over-year increase.

Asked by one resident at the budget hearing about spending trends and the use of federal pandemic funds under the American Rescue Plan Act, Clavin declined to answer.

“This hearing’s on the 2024 budget,” Clavin replied.

The town has received approximately $51.4 million in ARPA funds, according to a May borrowing prospectus.

Mastromarino said on Tuesday following the afternoon budget hearing the town is facing two major problems: a sharp drop in taxes collected from real estate sales and rising health insurance costs for town employees. 

“We’ve had a deterioration mortgage tax, a tremendous deterioration,” Mastromarino said.

Budget documents show that mortgage recording tax had reached $42.3 million in 2021 but fell to $32 million in 2022. Next year, the town expects that tax revenue to drop to $16 million, a 62% decrease compared to three years earlier.

Mastromarino attributed the drop in mortgage taxes to commercial property owners refinancing loans in 2021 in anticipation of interest rates hikes.

Moody’s Investors Service noted last year that the town’s coffers had benefited from city residents moving out to the suburbs during the pandemic. That boost was starting to peter out, Moody’s said in a 2022 report.

“Home sales continue to be robust and are selling at record highs but inventory has declined,” Moody’s said in its report. “Inflation and increasing mortgage rates are likely to put a damper on housing sales and will likely result in housing prices falling over the next year.”

That’s “revenue that’s gone, where do you get the money from?" Mastromarino said. "You’ve got to dip into the rainy day fund.”

Moody’s Investors Service last year upgraded the town’s credit rating to Aaa, its highest rating. The rating agency warned that “Failure to replenish reserves used to balance the budget” could result in a downgrade.

Mastromarino said the continued use of reserves isn’t expected to hurt the town’s Aaa rating.

“We don’t think it’s going to have a negative impact on our credit rating,” he said.

Mastromarino said the town is expecting greater revenue from higher interest rates on its cash deposited in banks — rising from $950,000 this year to $5 million next year, which would offset some of the reduction in mortgage tax revenue.