Two agencies downgrade Suffolk's credit
Two Wall Street rating agencies Wednesday downgraded Suffolk County's credit in the wake of a report that the county faces a $530 million budget shortfall.
The downgrades likely will have "some impact" on county interest expenses -- with possible increases of up to $60,000 annually and several hundred thousand dollars over the life of the bonds, said Richard Tortora, Suffolk's financial adviser.
Fitch's Ratings lowered Suffolk by one notch to A+ from AA-, which the county has had since May 2011, and assigned a negative outlook.
Standard & Poor's downgraded the county's credit by two levels, to A+ from AA, which Suffolk had held since May 2008. However, S&P assigned the county a "stable outlook," an upgrade from the current CreditWatch with negative implications.
Moody's Investors Service, which dropped the county's rating two places on March 11 -- following a special panel's report on the deficit -- Wednesday reaffirmed its A1 rating, but continued a negative outlook for the county.
The credit review comes as Suffolk prepares to sell $60.1 million in general obligation bonds on June 6 for a variety of capital projects, one of two such borrowings done annually.
County Executive Steve Bellone, who appointed the panel that in March estimated the deficit at $530 million in 2012 and 2013, called the downgrades "a stark reminder we have to make the tough choices now."
"Suffolk County can no longer afford to kick the can down the road," said Bellone, a Democrat.
In March, Bellone announced a $162 million deficit-reduction plan for 2012, and two more phases are planned to deal with the remaining budget hole.
Comptroller Joseph Sawicki, a Republican, called the rating agencies' actions "not surprising" in light of Moody's earlier action. He said the county's credit rating with all three agencies is at an "upper medium grade," whereas the county had been rated "high grade, high quality."
All three agencies criticized the county for a prolonged structural budget imbalance, its use of one-shot revenue and overly optimistic estimates of sales tax revenue.
S&P in its draft report said the "county has made significant strides" with its deficit reduction plan, and that the county legislature has shown a "political willingness" to implement the first stage. But the agency warned that structural imbalance could continue for another two years, and most of the steps announced so far "fail to address the underlying causes" of that imbalance.
"If the county fails to make progress on implementing key elements of the plan, ratings could be pressured," S&P analysts said. But, they added, "If there is swift progress . . . credit quality could improve."
Fitch was more guarded, noting that "the negative outlook reflects Fitch's concern about the county's ability to execute the first phase of its budget mitigation plan." The agency also warned that "full implementation will be challenging."
Legis. Wayne Horsley (D-Babylon), deputy presiding officer, said discussions are under way on phase two of the deficit-reduction plan. He said he expects major proposals will be ready by fall -- probably as part of the proposed 2013 budget."We recognize they are looking over our shoulder and I think the rating agencies will be pleased with what we do," he said.
Tortora said he expects Suffolk to have no problem finding interested investors for its borrowing. "The county has always had very good market access," he said. "These bonds are still very highly rated. I expect them to be oversubscribed several times over."
THE SUFFOLK DOWNGRADE
When governments borrow money by selling bonds, the capital markets determine the interest rates they have to pay based on perceived risk. Just as a person whose credit rating drops has to pay higher interest for a bank loan, governments generally have to pay higher interest rates after a downgrade. The market has known about Suffolk's fiscal troubles for some time. In March, Moody's Investors Service downgraded the county, and Standard & Poor's warned a downgrade could be coming -- which meant that Suffolk was likely to pay higher rates even without yesterday's downgrades. But while the downgrades certainly don't help, Suffolk's credit remains investment grade and borrowing costs for governments continue to be near historic lows.
-- Ted Phillips