A major Wall Street rating agency downgraded its rating on $1.4 billion in Suffolk County debt by a notch on Thursday, citing county officials' "failure to implement meaningful spending reductions."
Moody's Investor Service reduced the rating on the long-term debt from A1 to A2 while warning that future downgrades are possible if the county doesn't make progress in balancing its budget. The action came as the other major agencies, Fitch Ratings and Standard & Poor's, held the county's rating steady: A for Fitch and A+ for S&P.
Suffolk, which ended 2012 with a $155.5 million budget deficit, projects a $250 million shortfall through the end of next year.
The downgrade "reflects the county's failure to meet projected fiscal 2012 year-end estimates despite deficit mitigation plans," and the use of one-shot revenues to balance this year's budget, Moody's said.
Suffolk County Executive Steve Bellone and county legislators are working on a plan to address the $250 million deficit estimate, but have not yet released details.
Aides said Bellone continues to pursue long-term corrective measures. They include closure of the John J. Foley Skilled Nursing Facility, which the administration says costs $8 million to $12 million annually to operate; privatization of East End health clinics, which officials estimate will save between $3.8 million and $5.3 million over five years, and a new employee prescription plan projected to save $17 million a year.
"I would take some issue with the notion that we haven't enacted real structural savings," said Deputy County Executive Jon Schneider.
He noted that Bellone cut the size of Suffolk's workforce by more than 700 people during 2012, his first year in office. That came after an independent fiscal panel warned in early 2012 that Suffolk would face a $530 million budget hole by this year if it took no action.
"We've been taking the tough actions," Schneider said.
Bond rating downgrades generally force municipalities to pay higher interest rates. Suffolk officials said that even after Moody's reduced the county rating on short-term debt in April, they were able to sell the notes at lower interest rates than before the Moody's action.
Moody's, while noting the strength of Suffolk's strong tax base, said the 2012 year-end deficit was larger than expected, despite cost-saving moves such as last year's workforce cuts. But S&P this week said Suffolk has made progress, even with reduced property and sales tax revenue caused by superstorm Sandy and delays in a $20 million sale of county land in Yaphank for a rail hub expansion.
Fitch this week cited progress, but noted that the county continues to rely on "one-shot" revenue such as its pending request to the state to allow the sale and lease back of county buildings for $70 million in revenue. The measure was not included in the state budget passed in March, "but the county expects approval by the end of June, when the session ends," Fitch analysts wrote.
In October, Moody's dropped Nassau County's rating to A2 from A1 on a total of $1.4 billion in debt.