Moody's Investors Service is reviewing its rating on Nassau County, N.Y., debt amid a budget impasse that may bring about a downgrade before week's end.
Michael L. Johnston, the agency's vice president of mid-atlantic ratings, said the credit review comes in response to a $100 million general obligation bond sale scheduled for Tuesday. Proceeds will be used to pay off bond anticipation notes that were sold last year and this year.
In raising concerns over the county's rating, Johnston cited the current budget war and termed it "not ideal." The county's legislative body, the Board of Supervisors, is deadlocked over a plan by County Executive Thomas Gulotta to plug a $140 million deficit in Nassau's $1.9 billion fiscal 1992 budget, which closes Dec. 31.
The county has been forced to pay its bills through weekly, and sometimes daily, requests for short-term borrowings. On Tuesday, for example, the board gave the county authorization to borrow $665,000 to pay the Nassau County Medical Center's electric bill.
The board's three Democratic sumpervisors oppose the Republican county executive's plan, while the three Republican members support it. A majority is needed to pass the measure.
The Democrat members said in interviews that despite the Moody's review, day-to-day management of the county's budget is necessary.
"We have to make sure they, don't borrow more than they have to or spend more than necessary," said Benjamin Zwirn, supervisor of the town of North Hempstead.
The inability of the county legislature to immediately deal with the 1992 deficit and produce a plan that will lead to a structurally balanced budget in the future creates serious credit implications, Johnston said. Although he said the agency has made no formal decision on Nassau's GO rating, he termed the credit situation "serious" and said a downgrade is possible.
However, he said, "We're still talking this over and there's a reasonably good possibility we will not cut the rating.
"There's not much certainty in the county's fiscal situation this year, much less next year," he added. "The problem is serious."
A downgrade could cost the county millions of dollar during its upcoming bond deal, said county Treasurer John V. Scaduto. He said the downgrade would force Nassau to pay higher interest rates on the bonds and more for bond insurance. "This situation creates an aura of disarray which is always unwelcomed in the financial community." he noted.
The county's GO bonds are rated A by Moody's. The rating action could affect as much as $1.5 billion in outstanding GO debt, according to Moody's. Johnston said the rating decision will come no later than Friday.
Nassau is not rated by either Standard & Poor's Corp. or Fitch Investors Service.
The acrimonious nature of Nassau County politics and its effect on the county's fiscal crisis has concerned Moody's for some time. In July, the agency affirmed the county's A rating, but only after Nassau received authorization to sell as much as $65 million in deficit bonds and increase its mortgage recording tax during a special session of the state Legislature.
Since then, however, Lewis Yevoli, supervisor of the town of Oyster Bay, withdrew his support for the deficit proposal. Yevoli joined the two other Democratic board members, Zwirn of North Hempstead, and Bruce Nyman, supervisor of Long Beach, in calling for spending cuts in place of the plan.
As a result, the board has been unable to produce enough votes to approve a home rule message needed to implement the county executive's proposal.
Scaduto said the board's failure to approve the deficit bailout plan could result in a cash crisis by November. He said if the plan is not approved soon, he will not have enough time to assemble a syndicate to sell the debt. The county would then have to issue budget notes to avoid running out of money sometime in November.