Moody's downgrades Hempstead Town bonds a notch

The Town of Hempstead's bond rating has been dropped from Aaa to Aa1 by Moody's Investors Service.

That information, released Tuesday, means town borrowing will cost more, although it is unclear how much more.

In December, Moody's had reaffirmed the town's top-level bond rating, although it revised the town's outlook from "stable" to "negative."

Tuesday, Michael Deery, a town spokesman, was optimistic, citing the impact of a "bruising national economy" and "enormous costs" of recovering from superstorm Sandy.

"Despite this, Hempstead Town still maintains one of the highest credit ratings of any government on Long Island. Indeed, we would observe that Moody's terms the town's credit rating of Aa1 as 'strong.' "

Moody's said the Aa1 rating "factors [in] strong fiscal management, characterized by conservative budgeting practices, development of multiyear financial forecasts and a formal fund balance policy. The rating also reflects a large and diversified tax base and a manageable debt position."

The downgrade affects $349 million of debt secured by the town's general obligation pledge, noted Moody's, which said the downgrade "reflects the town's recent use of reserves to balance the budget and ongoing budget imbalances."

Martin Melkonian, a Hofstra University economics professor, said Moody's disliked the use of reserves.

"They want to see a balanced budget by either raising taxes or cutting expenses without using reserves, even if that means raising taxes.

"But I think everybody expects to see the town rebuild its reserves with strong revenue from the new Coliseum and the development around it, as well as expected new downtown development around the town."

Moody's said Tuesday the town's "stable outlook reflects our expectation that while reserves will decline in the near term, the town will balance its budget pressures with continued cuts in expenses and [with] revenue enhancements required as part of the town's fund balance policy."