Moody's downgrades Suffolk's credit rating

Moody's Investor Service, citing cash flow problems in Suffolk, downgraded the county's credit on the eve of a $400 million short-term borrowing against next year's property taxes.

The Wall Street ratings agency also disclosed that it will decide in 60 days whether to downgrade the county's long-term debt.

Moody's said Suffolk's "cash balances are expected to be very thin at the time of the note repayment" in 10 months. The agency added that the county is planning to borrow $60 million more in revenue anticipation notes by May for cash to pay bills. It would be the first time in 20 years that Suffolk will sell revenue notes, which uses unpaid state and federal aid as collateral and has a higher interest rate.

"What this downgrade reflects is the fact that Steve Bellone will inherit a fiscal mess," said Regina Calcaterra, co-director of his transition team. She said Bellone "will confront it head-on" and be "sending the message to the rating agencies that the era of fiscal games, one-shot revenues and blaming each other is over."

Moody's one-step downgrading to Municipal Investment Grade 2, from its earlier MIG 1, goes further than the negative outlooks issued by both Standard & Poors in May and Fitch Rating Service last month. Fitch also downgraded Suffolk a year ago from AA to AA- for long-term debt. Wednesday, Moody's also retroactively downgraded Suffolk's September sale of $120 million in tax anticipation notes.

Despite the downgrade, county budget officials say they expect that interest on the borrowing will be less than 1 percent and the extra cost will be only several hundred thousand dollars.

Comptroller Joseph Sawicki said Moody's concern increased significantly when it saw new cash flow projections that show that some revenues County Executive Steve Levy had budgeted for this year, such as the $12 million sale of land in Yaphank and $10 million in red-light camera fines, did not materialize. "What we're seeing here is the cumulative effect of phantom revenues and structural imbalance," he said.

The downgrading also comes after Levy and lawmakers clashed in the 2012 budget. Levy said he presented a balanced budget, which would have laid off 710 workers and shut the county nursing home. Lawmakers, who restored all but 88 jobs, say Levy's budget was out of balance by $100 million and they adopted a six-month spending plan only until new County Executive Steve Bellone can review the budget.

Mark Smith, a Levy spokesman, said, "Our ratings were affirmed in October by all three agencies after the county executive submitted his budget and these negative reports come only after the legislature raided reserves and funded hundreds of positions for only six months."

But Presiding Officer William Lindsay (D-Holbrook) said the report showed that Levy, in budgets dating back to 2008, repeatedly overstated revenue.