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National rating agency downgrades Nassau's credit

Nassau County Executive Edward Mangano works on the

Nassau County Executive Edward Mangano works on the new budget in his office in Mineola. (Sept. 15, 2010) Credit: Howard Schnapp

For the first time in a decade, Nassau County's credit has been downgraded by a national rating agency.

Moody's Investors Service dropped Nassau's credit rating Friday from Aa3 to A1 and also put the county on a negative outlook, signaling possible future downgrades. At the same time, however, two other major rating agencies held Nassau's credit and outlook steady.

A drop in the credit rating usually means higher interest costs for the county when it borrows to pay expenses - though county Comptroller George Maragos noted that the Federal Reserve's recent moves to push down overall interest rates could mitigate Nassau's costs.

Moody's lowered the county's rating on its $1.2 billion in outstanding debt and also on $130 million in planned short-term borrowing.

Three local fiscal watchdogs, including Maragos and the Nassau Interim Finance Authority, had warned that County Executive Edward Mangano's $2.6-billion budget for 2011 contained about $250 million in risky revenue and savings. If the county runs a 1 percent deficit, NIFA, a state monitoring board, could take control of its finances.

George Marlin, a member of NIFA, said he had yet to read Moody's report. "However, this obviously is not good news for the county, but it is not surprising in light of the fiscal challenges that the county faces."

Moody's cited risks in Mangano's budget for 2011, saying the Republican's spending plan "contains significant assumptions that may be difficult to meet" and reflects an "increased dependence on nonrecurring revenues. . . . These new developments compound a trend of ongoing structural deficits and the lack of a feasible long-term plan."

However, late Friday, Standard & Poor's, another major rating agency, maintained its current A-plus rating for the county and gave it a stable outlook, while Fitch Ratings service this week did the same.

S&P cautioned in a report provided by Mangano that Nassau's rating "remains below average" compared with similar counties because of its use of nonrecurring revenues, projected future budget gaps and the continued risk from sales tax fluctuations, property tax refunds, labor negotiations and retirement costs.

"Two of the three major credit agencies affirmed Nassau's stable financial outlook," Mangano said. "This is good news for these difficult economic times."

Minority Leader Diane Yatauro (D-Glen Cove) said, "By relying on unrealistic revenue expectations and wishful thinking, the Mangano administration has created a nightmare budget for Nassau County, so it's no surprise that Moody's issued a downgrade."

Although a Mangano aide pointed to an inherited "budget mess," Legis. David Denenberg (D-Merrick) said, "This is Mangano's budget, Mangano's gimmicks, Mangano's borrowing and Mangano's downgrade."

Nassau's A1 rating from Moody's is still well within investment grade, with Moody's explaining that it represents "above-average creditworthiness relative to other U.S. municipal or tax-exempt issuers."

The county's credit rating was downgraded to near junk during the 1999 fiscal crisis. Mangano's predecessor, Democratic County Executive Thomas Suozzi, boasted that the county received 13 credit upgrades during his two terms in office, with the highest rating affirmed last November.

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