Fitch warns it may downgrade Nassau's credit
A Wall Street ratings agency warned Wednesday that it likely would downgrade Nassau County's credit if a federal court's decision throwing out an employee wage freeze is upheld.
Fitch Ratings amended its evaluation of Nassau's financial condition to reflect the "adverse court opinion" by U.S. District Court Judge Leonard Wexler. He ruled last week that the county's financial control board did not have the power in March 2011 to freeze wages when it suspended employee pay hikes and annual step increases.
If the ruling is not overturned, the county might have to pay an estimated $80 million in back wages, Fitch noted. Wexler delayed execution of his decision pending appeal by the control board, the Nassau Interim Finance Authority. The county said the appeal could take at least a year to resolve.
Fitch did not change its ratings for the county's proposed sale of $163.3 million in long-term general improvement bonds and $187.8 million in short-term bond anticipation notes, which are expected to go to market Thursday.
It maintained Nassau's long-term A-plus rating with a negative outlook. However, Fitch said, "An adverse decision on appeal would further stress the county's already limited financial flexibility and would likely result in a downgrade. While the county would likely issue . . . to cover retroactive pay, Fitch believes the county's options for meaningful revenue and expenditure adjustments . . . are limited."
Deputy County Executive Ed Ward said, "We expected this because [Deputy County Executive] Tim Sullivan had rightfully amended the recent [bond] offering, and it's routine at this point." Sullivan on Friday amended the county's offering statement to investors to reflect Wexler's ruling.
County Comptroller George Maragos said Fitch "added a potential risk or challenge that we would face." He pointed out the county has taken positive steps to manage its financial risks, such as reducing its workforce, consolidating police precincts and budgeting realistic sales tax revenue.
However, Legis. Wayne Wink (D-Roslyn) said the county has "serious problems already. This will only exacerbate these problems. There's no doubt in my mind that all the credit rating agencies are going to take a hard look at us again."
NIFA officials declined to comment.
Both Fitch and Moody's last week cited NIFA's wage freeze as helping the county manage its finances when the agencies issued new statements that maintained Nassau's credit rating at current levels.