Moody's Investors Service yesterday cut Nassau County, N.Y.'s general obligation bond rating to its lowest investment grade category, citing a political impasse that has stymied a proposed deficit-reduction plan.
The agency slashed Nassau's bond grade two notches, to Baa from A, on the eve of competitive $103 million general obligation issue the county plans for today to pay down bond anticipation notes sold over the past years.
The rating action affects $1.5 billion in county debt.
Responding to the downgrade, Nassau County Treasurer John V. Scaduto said in a prepared statement that "we...do not believe that it is justified by either the county's economic situation or its current financial condition. Nassau remains one of the richest counties in the nation ranking in the top 10 in per capita income."
The downgrade will likely cost the county millions of dollars in interest and force the Nassau officials to pay higher rates for bond insurance on today's deal. The rating cut would also increase these costs when the county floats bonds in the future.
"The county's continuing failure to reach a consensus on a deficit-reduction plan raises significant uncertainty over its ability and willingness to take the difficult steps required to address its weakened financial condition," Moody's said in a press release. "The absence of timely and effective action to redress this financial condition results in the rating revision."
The deficit bailout plan, proposed by Republican County Executive Thomas S. Gulotta, calls for the sale of up to $65 million of deficit bonds and a 1% mortgage recording tax. In July, the county received state legislative approval to issue the debt in order to help cover an accumulated budget gap projected at about $130 million in its $1.9 billion 1992 fiscal year budget, which ends Dec. 31.
However, in recent months the county's legislative body -- the Board of Supervisors -- has split evenly on the deficit bailout plan, with three Republicans supporting the measure and three Democrats opposing the plan.
In announcing the downgrade, Moody's cited the acrimonious nature of Nassau County politics for stalling the deficit plan as well as other measures needed to restore structural balance to the county's financial condition. In July, Moody's affirmed the county's then-A rating but warned that the implementation of the deficit proposal would play a key role in helping Nassau maintain that credit grade.
Although Nassau County ranks among the state's wealthiest municipalities, a stiff regional recession has resulted in a deterioration in the county's sales tax revenue base. In fact, the downgrade is the second one this year for Nassau County. In January, Moody's cut the county's GO rating to A from A1, also citing political difficulties that hampered efforts to develop a long-term budget balancing plan.
Nassau County became the focus of the Moody's mid-Atlantic rating team after the county said it planned a general obligation bond sale. The sale is also competing for municipal buyer against New York City's $1 billion issue, another factor that could force the county to pay higher interest rates on the issue.
Scaduto said the political turmoil that led to the county's downgrade also stymied a general obligation bond refunding that would have saved Nassau about $4 million in interest costs.
Scaduto said he had planned to refund $100 million of bonds to take advantage of the historically lower interest rates available in the municipal market, but that the inability of the board to pass the county executive's bailout plan forced county GOs to trade lower. As a result, Scaduto said the refunding was not cost effective.
~Not only will this situation affect [today's] bond sale, but we also had a refunding in the works that did not go," Scaduto said.