Standard & Poor's Ratings Services said it has lowered its underlying rating on Oyster Bay, N.Y.'s existing general obligation bonds two notches to BB-plus from BBB.
At the same time, it removed the rating from CreditWatch negative, where it was placed on Jan. 28. The outlook is negative.
"The resolution of the CreditWatch negative by lowering the rating to BB-plus reflects Oyster Bay's chronically weak budgetary performance and very weak budgetary flexibility that has diminished liquidity to weak levels," said Standard & Poor's credit analyst Victor Medeiros. The rating is further constrained by weak management based on chronic fiscal imbalances over several years, and weak budgetary planning and estimating.
Town officials originally estimated that general fund reserves would see only a slight decline in fiscal 2014 following an increase in 2013. However, fiscal 2014 closed with a $19 million operating deficit, or about 14% of expenditures, in the general fund, and a $9.2 million deficit across all other major governmental operating funds.
This negative operating result, S&P says, was sizable and significant. For fiscal 2015, management is estimating an additional negative result, albeit smaller, in the general fund, even after executing on certain revenue enhancements, and expenditure cuts.
Compounding the financial challenges of the town have been delays in its financial reporting. According to the town, the 2014 audit was late as a result of challenges in implementing new accounting software, and the fiscal 2015 audit will be available only later this calendar year.
The town, with an estimated population of 295,330, is in Nassau County.
"The negative outlook reflects our opinion that we could lower the rating further if the town can't make strong corrective budgetary adjustments to improve budgetary performance and base-line reserves to much stronger levels," added Medeiros.
The town continues to face budgetary pressures as fixed costs escalate and liquidity remains weak, leaving it vulnerable to further financial deterioration, particularly if the business, financial, or economic environment worsens. Should budgetary performance remain weak and liquidity levels continue to deteriorate, or if market access diminishes, the rating could be lowered further, the agency said.
