All three major rating agencies are saying a recent court decision is a potential credit negative for Nassau County, N.Y.
On Feb. 14 a U.S. District Court judge ruled against a wage freeze for county employees. The Nassau Interim Finance Authority imposed the wage freeze in March 2011.
The judge ruled that NIFA’s right to impose a wage freeze had elapsed in 2008.
The judge’s ruling came in a case filed by the police union and thus only affects the county’s police. However, other public unions have sued NIFA challenging the freeze.
The judge awarded the police back pay but stayed his ruling to allow NIFA to appeal, which it is doing.
If all the unions’ challenges to the wage freeze prevail, the county would owe $80 million in back pay for fiscal 2011 and 2012, Nassau County Comptroller George Maragos said. The cases will probably take at least a year to resolve, Maragos said. So the county would also have to pay for back pay for fiscal 2013, he said.
The county’s fiscal years correspond with the calendar year.
The ruling against NIFA is a credit negative for Nassau County, Moody’s Investors Service said Thursday. The $80 million sum would be about 3% of its current year budget. “While this is a relatively small portion of the county’s overall budget …, any negative variation could magnify the county’s precarious financial position,” Moody’s assistant vice president Robert Weber wrote. Moody’s rates Nassau County’s general obligation debt at A2 with a stable outlook.
Responding to the ruling, Fitch Ratings said if NIFA loses its appeal, Fitch would likely downgrade the county from its current GO rating of A-plus with a negative outlook. The final court decision would be unlikely to come until 2014 and thus not pose a cash flow problem for this year, Fitch director Karen Wagner wrote. However, a more than $80 million decision in 2014 would pose a problem for a 2014 budget already projected to have a gap of $62 million, she wrote.
Standard & Poor’s has also issued a statement saying that if the county loses the appeal, S&P would likely view it as a source of fiscal pressure on the county.
“Whenever you lose a court case it’s bad news,” Maragos said. However, the county is being conservative and is starting to set aside money in case it has to pay back pay, he said.
Nassau County sold $338 million in short and long-term debt Thursday. “Our offering was oversubscribed, very well received,” Maragos said.
