Nassau County Executive Edward Mangano, with majority leader Peter Schmitt,...

Nassau County Executive Edward Mangano, with majority leader Peter Schmitt, reacts to NIFA's decision to take over the county's finances. (Jan. 26, 2011) Credit: Howard Schnapp

Moody's Investors Service announced Wednesday it is reviewing Nassau's $1.6 billion in outstanding debt "for possible downgrade" because of the county's legal fight against a state takeover of its finances.

The ratings agency said its review "will focus on the county's ongoing financial strain as well as potential vulnerability" related to its variable rate debt and short-term notes. "We expect to resolve the review within the next several weeks," the agency said.

Moody's said its examination "was prompted by the county's legal challenge of the Nassau Interim Finance Authority's conversion to 'hard control' status from an advisory role."

The agency said it also is reviewing debt held by the county Sewer and Storm Water Authority; the Nassau Health Care Corp., which runs the Nassau University Medical Center; and the Nassau Regional Off-Track betting agency.

NIFA, a state oversight agency created in 2000, voted unanimously to take control of the county's finances last week. The state watchdog said Nassau's budget is in the red by $176 million - nearly seven times the 1 percent gap that triggers a control period. The move came after months of wrangling with Mangano over the soundness of his $2.6-billion budget.

Insisting that his budget is balanced, Mangano sued Monday to stop the takeover. "It's amazing that Moody's could even consider this at a time when the county is ending the fiscal year with a balanced budget and surplus," said Mangano spokesman Brian Nevin. "Taxpayers should be gravely concerned that NIFA's unfounded and unfair actions will result in a property tax hike and potential downgrade for Nassau County."

NIFA members say they can't raise taxes nor order the county to do so.

Presiding Officer Peter Schmitt (R-Massapequa) blamed NIFA for putting the county at risk by issuing variable rate debt. About $600 million in debt issued by NIFA on behalf of Nassau County is variable rate.

"I have been urging them to take advantage of historically low interest rates to move it into fixed rate for over a year and have been rebuffed by [NIFA] chairman [Ronald] Stack," Schmitt said.

Stack declined to comment Wednesday. In the past, he has said variable rate debt has saved the county millions of dollars in interest costs.

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