Standard & Poor’s warned Oyster Bay Friday that its bond rating could be downgraded due to weak financial performance or withdrawn due to lack of information.
“The action is due to an estimated deterioration in the town’s operating performance and available reserves,” Standard & Poor’s credit analyst Ruth Ducret said in a news release.
The rating agency said it expected to make a decision within 90 days. The announcement follows Moody’s Investors Service withdrawal this week of its Oyster Bay bond rating due to the town’s failure to provide audited financial information for 2014.
“It is only the absence of a complete 2014 audit that has triggered the credit watch,” Oyster Bay finance director Robert Darienzo said in a statement Friday. “The town will submit the audit within the 90 day timeframe given.”
A downgrade would bring the town’s credit rating, currently BBB, closer to or even into junk bond status. As recently as five years ago, Oyster Bay had Standard & Poor’s top rating, AAA. Rating downgrades increase the interest rates the town — and thus taxpayers — must pay when the municipality borrows money.
Oyster Bay disclosed this week in unaudited financial statements that it estimates it closed 2014 with a $17 million operating deficit in the general fund and a total deficit of $25 million. In addition to the deficits, the town’s reserves dipped further in 2014, dropping to negative $15 million from negative $3.2 million the previous year.
“We believe that this negative operating performance further constrains the town’s budgetary flexibility and likely erodes its cash position,” Standard & Poor’s said in its release.
Town officials have blamed the late 2014 audited financial statements on problems that arose when it switched to a new software system more than two years ago. The town disclosed this week that it expects to finish the audited financial statements by March 31.
Standard & Poor’s said it would likely withdraw its rating if those audited statements are not provided by the town.
On Friday, the town borrowed $121.8 million in short-term debt. The largest portion of that debt, $99.1 million in tax-exempt bond anticipation notes, was sold at a yield of 1.75 percent, a rate comparable to junk bonds.