Moody’s Rating Agency Revises Huntington’s General Obligation Bonds Outlook To Negative
On August 21st, Moody’s credit rating agency assigned a Aaa rating with a negative outlook on the Town of Huntington’s proposed sale of $13.4 million in General Obligation bonds. The expected sales date is 8/29/2013. The bonds will provide financing for various capital projects throughout the town, the largest of which will be for water system upgrades.
According to the Reuters news agency “debt ratings agency Moody’s has warned that Huntington, Long Island, could lose its top credit rating if the town funnels more money away from public pensions to meet short-term spending needs, a controversial practice that has skyrocketed among New York’s cash-strapped municipalities.” Read the full Reuters story here.
Moody’s stated that “the negative outlook reflects the town’s amortization of approximately 33% of the required pension contribution in 2012. This practice of deferring current operating expenses to future period is inconsistent with our view of strong financial management. Continued amortization of annual pension payments could result in a downgrade to Aa1.” Furthermore, Moody’s states “the negative outlook reflects the structurally imbalanced nature of the town’s budgets the past two years and its use of the pension amortization program to balance operations. Failure to structurally balance future budgets with recurring revenues and without the use of one-time revenues or deferral of expenditures could lead to a rating downgrade.”
The current Aaa rating reflects the town’s solid financial position with currently healthy reserves and a wealthy tax base.
Moody’s states that the only way the negative outlook would be removed is through the town commencing a program of “structurally balanced budgets, including the full payment of pension contribution payments.”
A downward rating will occur if the town continues to show an “Inability to maintain structural balance, accompanied by significant declines in General Fund balance, continued use of the pension amortization program, significant decline in tax base.”
The use of non-recurring or “one shot” sources of revenue to balance budgets recently caused Suffolk County to receive bond downgrades.