Agency: Lawsuit could hurt Nassau's credit

A major credit rating agency says the fiscal takeover in Nassau "should help stabilize" the county's finances - but that a lawsuit seeking to block the move could trigger a credit downgrade.

Even before County Executive Edward Mangano went to court to challenge the Nassau Interim Finance Authority's decision to take control of the county's finances, Moody's Investors Service warned that, in the event of a lawsuit, Nassau "could enter in to a period of greater budgetary and liquidity stress until the dispute is resolved."

In such an event, Moody's said Friday, "the rating may be placed on review for possible downgrade."

NIFA, a state oversight board created in 2000 during the county's last fiscal crisis, voted unanimously Jan. 26 to take control of the county's books after months of wrangling with Mangano over the soundness of his $2.6-billion budget. The six-member NIFA board concluded the budget contains a $176-million deficit - nearly seven times the 1 percent gap that triggers a control period.

Mangano maintains his budget is balanced and filed suit Monday. He has also complained that NIFA's comments have hurt the county's standing on Wall Street.

"Since NIFA has continually expressed the desire for additional revenue, taxpayers should be gravely concerned that NIFA's unfounded and unfair actions will result in a property tax hike," Mangano spokesman Brian Nevin said Tuesday. NIFA board members have said they cannot raise taxes and will not request the county to do so.

Tuesday, the watchdog and the county agreed to delay a Feb. 15 deadline to file a financial plan and guidelines for contract approval, until Feb. 22.

State Supreme Court Justice Arthur Diamond, who signed the stipulation extending the deadline, also will hold a hearing Feb. 18 on the county's application for a preliminary injunction to block NIFA from imposing a control period.

Meanwhile, Fitch Ratings agency said Friday that it had taken no action on the county's rating since the NIFA takeover last week, while Standard & Poor's, the third major ratings agency, has not commented.

"In Fitch's view, a 1 percent operating deficit is a low threshold for invoking the takeover by a control board of a local government, thus NIFA's action is not in and of itself reason to review the county's rating," Fitch reported.

In another development Tuesday, the county moved $133 million in capital and sewer accounts out of Wells Fargo Bank, where NIFA chairman Ronald Stack is a managing director of public finance, to HSBC bank.

Nassau Treasurer John Mastromarino said he expects the county to earn more than $137,000 in additional interest because of the change. He said he is negotiating with other banks to take the remaining $109 million in county funds still with Wells Fargo.

As a slap at Stack, Presiding Officer Peter Schmitt (R-Massapequa) called on Mangano to move the money and Mangano directed Mastromarino to transfer the funds. "The county executive made that directive to me and I intend to fully comply with his directive, but as an unintended consequence, we're coming out ahead," Mastromarino said.

With Randi F. Marshall

and William Murphy