Deteriorated financials drive downgrade for Suffolk County

Recurring operating deficits helped drive a one-notch downgrade for Suffolk County, New York.

Moody’s Investors Service downgraded the issuer rating and the limited tax general obligation bond rating for New York State’s fourth-most-populous county to Baa1 from A3 Thursday citing a “deteriorated financial position resulting from recurring operating deficits, deferment of pension contributions, and reliance on significant annual cash flow borrowing."

The action affects $1.6 billion of outstanding debt. Moody’s revised its outlook at the lower rating to stable from negative.

“The stable outlook reflects our expectation that the county will continue to make strides in reducing budget one shots and nonrecurring revenues to achieve structural balance,” said Moody’s analyst Tatiana Killen in her report. “The outlook also reflects the county's efforts to improve its financial position by implementing expenditure control measures and utilizing resources provided by the county's sizeable and diverse tax base.”

S&P Global Ratings in June 2017 lowered Suffolk’s debt rating one notch to A-minus because of weak reserve levels. Fitch Ratings rates Suffolk at A-minus.

Killen noted that despite Suffolk’s reduced reliance on one-shot revenue sources, the county’s fund balance grew to a negative 12% of revenues at the close of the 2017 fiscal year. The county also saw its negative cash position increase to 10.9% of revenues, according to Killen.

"While this is based on past borrowing, we continue to implement structural reforms that will create greater efficiencies and long-term savings in county government,” Jason Elan, a spokesman for Suffolk County Executive Steve Bellone, said in response to the Moody’s downgrade.

Bellone said his 2018 budget proposal included the fewest one-shot revenue measures since 2008. The budget plan hinged largely on a 2.8% rise in sales tax collections from previous estimates.

Killen noted that Suffolk could see an upgrade to if it improves reserve and liquidity levels along with a return to structurally balanced budgets that includes full payment of pensions. An additional downgrade could occur in the event Suffolk fails to access the capital markets for short term cash flow debt borrowing or returns to past practices of non-recurring revenues or relying on deferred pension amortization.