Weak reserve levels led S&P Global Ratings to downgrade Suffolk County, N.Y.’s debt for a second time in less than two years.
S&P lowered the large Long Island municipality’s general obligation bonds one notch to A-minus from A late Monday, citing concerns about the county’s long-term fund balance. The outlook is stable.
Suffolk has made recent progress with reducing its budget deficit, but S&P credit analyst Rahul Jain noted in his report that negative available reserves the last seven years are unlikely to reach positive territory through the rest of the decade.
“It is our opinion that while the county's operating performance has stabilized, the county will experience continued difficulty in generating surpluses over the near term, which would allow it to significantly improve fund balance over the near to medium term to levels in line with higher rated peers,” said Jain. “We believe that current reserve levels are more comparable with those of lower rated peers, and despite the county's very strong economy, result in a weakened ability to meet financial obligations if a period of substantial economic distress were to occur."
Suffolk County is slated to hold a $48.7 million GO bond sale on June 29. The county is planning to use bond proceeds for various capital projects to enhance roads, municipal buildings and sewers along with addressing legal settlements.
“I continue to be concerned that another downgrade will result in increased borrowing costs and possibly a diminished pool of prospective purchasers,” Suffolk County Comptroller John M. Kennedy said in a statement. “While the rating agency realizes actions have been taken to improve our position, there is still much more to do.”
S&P previously downgraded the county in October 2015 to A from A-plus due to a decision to not pierce New York State’s 2% tax cap law that would have allowed it to boost reserves. Structurally imbalanced budgets resulted in Moody’s Investors Service downgrading Suffolk’s credit rating three times between 2012 and 2014 from a high of Aa2 down to A3. Fitch Ratings cut Suffolk to A from A-plus in March 2013.
"As this report indicates, Suffolk County maintains a strong debt profile, narrowed its operating gaps and reduced its reliance on one-shot revenues,” Jason Elan, a spokesman for County Executive Steve Bellone, said in a statement. “While the County has slashed its structural deficit by more than half since 2016, the administration will continue to implement fiscally conservative policies that achieve greater efficiencies, lower costs and save taxpayer dollars."