The Town of Babylon has been upgraded to the highest bond rating available from Moody’s Investors Service, the first time the town has achieved the top designation, which can further reduce its cost of borrowing.
The credit rating agency has given the town an Aaa rating, up from Aa1, with a “stable outlook” on $25.2 million in new and refinanced bonding. Moody’s also upgraded to Aaa the town’s $166 million in outstanding general obligation debt.
“This is 19 years in the making,” town Supervisor Rich Schaffer said, referring to 1998, when Babylon was on the brink of filing for bankruptcy.
The town is required to get at least one rating before bonding. The town also received a rating of AA+ from Standard & Poor’s, that agency’s second-highest level.
According to Moody’s report, the Aaa upgrade “reflects the town’s large and diverse tax base, sizable reserves, and sound management practices.”
The new bond rating will save Babylon money, town Comptroller Victoria Marotta said.
With the Aaa upgrade, the town has earned a 0.10 percent drop in its interest rate, with the $17.8 million in new bonding garnering a 2.25 percent interest rate through 2026, she said. With the help of the upgrade on the $7.4 million in refinanced bonds, the town saved more than $300,000, Marotta said.
“Now the pressure is on to maintain the rating,” she said.
Moody’s uses four factors in its ratings assessment: economy/tax base, representing 30 percent of the rating; finances, 30 percent; management, 20 percent; and debt/pensions, 20 percent.
Schaffer said that each year officials request an upgrade but came to believe that the town’s inability to get to Aaa was due to Babylon’s largely blue-collar tax base. This year, instead of the usual conference call with Moody’s representatives, the town invited analysts to tour the town, including development projects in Wyandanch and Copiague, Schaffer said.
“We thought what they needed to see was several years of consistent management,” he said.
In Moody’s report, one of the town’s credit challenges is listed as its “relatively low wealth and income indicators for the region,” but the report cites as a credit strength the town’s “large and diverse tax base expected to benefit from ongoing development.”
Five towns on Long Island have an Aaa rating from Moody’s: East Hampton, Huntington, Islip, North Hempstead and Smithtown.
“This is recognition for those hardworking blue-collar towns that we can compete on the same level as the guys who have the big mansions,” Schaffer said.
In 1998, Babylon had the lowest bond rating on Long Island — Baa3, one step above junk bond status. Moody’s at the time declared a “negative outlook” on the town’s finances and did not upgrade its rating despite town officials’ pleas, until 2001. In the 16 years since, the company has given the town nine more upgrades.
Schaffer, who was in his first term as town supervisor in 1998, blamed the town’s rocky finances at the time to conflict from the creation of a commercial garbage district, resulting in high carting and litigation fees.
Schaffer gives credit for the turnaround to his predecessor, Suffolk County Executive Steve Bellone, as well as to Doug Jacob, finance director at the time.
Jacob is subcontracted by the town through his company, Red Hill Professional Services Inc., a general services firm that provides workers to the town. Jacob also served for a decade as the town’s municipal finance adviser on bonding until July, when he stepped down after becoming the subject of a U.S. Securities and Exchange Commission investigation.
Jacob was one of five top town officials indicted in 1997 on felony charges of falsifying documents filed with the state in order to hide a deficit. Four were acquitted. Jacob was convicted in 1998 of eight misdemeanor counts of second-degree offering a false instrument for filing and sentenced to probation.