By Joan Gralla
NEW YORK (Reuters) - Westchester County has the lowest median household income of the four wealthy New York counties near New York City, but it alone has bragging rights to something that would be the envy of any municipality in these times of fiscal trouble: a top AAA credit rating.
One secret lies in Westchester's higher and steadier stream of property taxes, analysts say.
Rockland County, which lies north of New York City and has a population just one third that of Westchester, and larger Nassau and Suffolk, which lie east of Manhattan on Long Island, depend more on sales taxes.
Sales taxes are a more volatile source of revenues that, compounded over the years with bad management, have pushed down cash reserves and credit ratings.
Although all four counties, whose household incomes and housing values easily exceed national averages, rely heavily on Wall Street as their economic engine, their fortunes have diverged markedly
All four were badly hit by the financial crisis, and after the recession all four counties elected new leaders, who say their predecessors overspent and over-taxed.
But Westchester boasts reserves of $110 million in fiscal 2012, markedly down from a record high of $177 million in 2006, but it still claims a top-tier credit rating because of its healthier finances.
On the other hand, Rockland faces a $21 million budget hole, while Suffolk's 2012 reserves are expected to fall to $51 million from $123 million 2007. And Nassau, whose finances were placed under state oversight in 2000, claims $92 million of reserves but has a $50 million budget deficit.
All of the counties are struggling with the steadily rising costs for payrolls, pensions and healthcare, but the heavier reliance of Rockland, Suffolk and Nassau on sales taxes poses a risk.
"Historically, sales taxes tend to be more volatile or correlate with the economy more than property taxes do - whether you buy another pair of shoes, that depends on your employment prospects and your earnings," said Guy Davidson, director of municipal bonds at AllianceBernstein.
For Westchester, the strength of its property tax base is not just because it has the highest median home prices - $543,4100 as of the fourth quarter of 2011, according to Moody's Analytics - but also has because of a structure that protects that revenue stream in a way that differs markedly from the three other counties, which are struggling with large deficits and possible credit downgrades.
Westchester does not repay cities, towns and school districts if they over-collect from home owners and from businesses who successfully challenge assessments.
"We are the only county in the state where the municipalities guarantee full payment of the levy," said Britta Vander Linden, a spokeswoman for County Executive Rob Astorino, a Republican.
The structure strengthens Westchester's credit but pressures its localities because they bear the burdens and costs of pursuing delinquent taxpayers, credit analysts said.
Nassau's handling of property taxes is the complete opposite of Westchester's. It pays refunds to homeowners and business owners who have been overcharged on property taxes.
"Westchester is the flip side of Nassau; where Nassau has to make whole all the underlying jurisdictions. Westchester...is guaranteed 100 percent of their money from the property tax," said Erin Daugherty, a municipal research analyst with AllianceBernstein in New York.
Nassau's much more generous approach is one reason its finances have been under pressure since 2000, when a state control board was created to prevent a bankruptcy.
From 2002 to 2010, the county borrowed more than $1 billion to pay these tax refunds, according to Cristina Brennan, a spokeswoman for the Republican legislative majority.
Rockland and Suffolk also take on a greater burden than does Westchester, ensuring their localities get their full share of property tax revenue before collecting what they are owed.
"We make everyone else whole first," said Vanessa Baird-Streeter, a spokeswoman for Suffolk County Executive Steve Bellone, a Democrat.
Stephen DeGroat, Rockland's commissioner of finance and budget, said, "We have the task of collecting all the delinquent taxes." Rockland hopes to partly fill its budget gap by laying off 150 workers, reviving a residential energy tax surcharge and raising motor vehicle fees. It also might ask the state to let it sell about $80 million of bonds to cure a string of structural deficits.
Nassau and Westchester do share a credit negative: their property taxes are among the nation's highest, something that can cause both residents and employers to move.
Jason Wilson, a branch manager for Julia B. Fee Sotheby's International Realty in Scarsdale, in Westchester County, noted that some people who live in the northern part of the county, where property taxes are high, are moving to the southern section, which has many more businesses that also pay property taxes, easing the burden on homeowners.
(Editing by Tiziana Barghini and Leslie Adler)