Moody's Investors Service yesterday said that it may downgrade Nassau County, N.Y.'s credit rating in response. to a political impasse that threatens key elements of the county's deficit-elimination plan.

"We have real concerns," said Michael L. Johnston, the agency's vice president of Mid-Atlantic ratings. "We haven't made any decisions yet. But the level of concern is quite high. We have to see how this situation pans out. "

The Board of Supervisors, the country legislative body, is divided over the approval of the sale of $17 million in budget notes. The notes will help fund several county agencies that will soon run out of cash, county officials said. County officials said while there is no immediate cash shortage, the budget notes are needed now because the county cannot legally transfer funds to these agencies until the fall. There will be a cash shortage in the late fall, they said, if the county legislature does not approve the deficit bond and mortgage tax.

A possible downgrade would follow an affirmation of the A rating that Moody's assigned the county's bonds in July. At the time, Moody's applauded officials in Nassau for taking steps to develop a long-range plan to solve an accumulated budget deficit. In July, the county received state authorization to raise its mortgage recording tax and issue deficit bonds. The county is not rated by either Standard & Poor's Corp. or Fitch Investors Service.

At the moment, the board is evenly split on the issue, with three Democratic supervisors refusing to approve the note sale. A simple majority is needed for passage. The board is scheduled to vote on the notes at a special session either late this week or early next week. several Democratic members said.

From the rating agency's standpoint, the political stalemate over the budget notes has far wider credit implications for the county, threatening its general obligation bond rating, Mr. Johnston said.

Specifically, Moody's is concerned that the politically divided board will not approve the sale of up to $65 million of deficit bonds, as well as an increase in the county's mortgage recording tax to cover a budget deficit of $135 million in its fiscal 1992 budget. which ends Dec. 31.

Without this approval, the county faces a near-certain downgrade of its general obligation bond rating, Mr. Johnston said.

Mr. Johnston has termed the deficit bond issue and the tax increase as a necessary "transition" to help the county achieve a structurally balanced budget.

Moody's said in a statement released last week that "unless some consensus on a plan emerges quickly, the intensity of the political division on the Board of Supervisors threatens to paralyze the decision-making process and impede the implementation of critical fiscal policy."

Ken Cynar, a spokesman for County Executive Thomas S. Gulotta, charged the Democrats with playing politics with the county's credit rating. "We are deeply concerned with their inaction," Mr. Cynar said. "And we can understand why Moody's should be concerned."

In interviews late yesterday, Democratic opposition to the budget notes seemed to be softening.

However. Benjamin Zwirn, supervisor of North Hempstead, and Lewis Yevoli, supervisor of Oyster Bay, said they will oppose both the deficit bond sale and the mortgage tax increase. They said the county should first cut the size of government before increasing taxes or selling more bonds.

Bruce Nyman. the Democratic supervisor of Long Beach. did not return telephone calls.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.