Moody's Investors Service downgraded Suffolk County, N.Y. general obligation debt to A3 from A2 Tuesday night, citing continued use of one-time revenues and significant cash-flow borrowing.
Moody's GO downgrade affects $1.4 billion in debt.
The rating action came ahead of the county's planned sale of $70 million of refunding GO bonds. The GO rating was affirmed at A-plus by Standard & Poor's and A by Fitch Ratings.
On Tuesday Moody's also downgraded $70 million in lease revenue bonds from the Suffolk County Judicial Facilities Agency to Baa3 from Baa2.
Moody's noted that the county ended 2012 with a $159 million decline in General Fund balance to a negative $325 million level , or 16% of revenues.
The county took a lump sum payment by securitizing its tobacco settlement revenues to close past budget gaps. Removing the accounting treatment of this, the general fund balance would still be a significantly negative $145 million, Moody's analyst Valentina Gomez said.
Unaudited 2013 results show that the general fund balance improved by $119 million.
However, the county continues to rely on one-shot and short-term revenue sources, Gomez noted. The county is attempting to sell its nursing home, it sold its tobacco revenues and is amortizing $45 million in pension payments over ten years.
"The county's liquidity position will remain strained for the foreseeable future as budget imbalances and significant cash flow borrowing needs continue," Gomez said. Total cash flow borrowing in 2013 increased $25 million to $625 million, or 17% of receipts.
If one subtracts cash gained from the sale of short-term notes, "at no point during fiscal 2013 will monthly cash flows finish with a positive net cash balance," Gomez said.
"This is very weak," Moody's managing director Naomi Richman said. Suffolk's fiscal years align with the calendar year.
Gomez said that she expected property values to continue to decline in the next few years, further squeezing county government. However, over the long term she said she expects property values to go up.
The county also benefits from a below average debt burden of about 2.2% of full valuation, Gomez said.
Suffolk's net pension liability is a below average 0.6 times operating fund revenues, she said.
Moody's has a stable outlook on the debt.
Gomez said Moody's expects the county to "reduce reliance on one-time revenues to balance the budget and return to structural balance and add to reserve levels going forward."
Fitch has a stable outlook on its rating and S&P has a negative outlook on its rating.
Asked to comment on Moody's downgrade, Suffolk County spokeswoman Vanessa Baird-Streeter said the ratings agencies were mixed, with two affirming the rating and Fitch switching from a negative to a stable outlook.
Baird-Streeter attributed the downgrade to a new Moody's local government methodology that put a greater emphasis on a government's past in determining the rating. Suffolk had a history of using one-shot sources of income from 2005-2012, under a different county executive, Baird-Streeter said. There was no event that triggered the downgrade she said.
Moody's Richman disagreed, however, saying Moody's lowered Suffolk County's rating because it has diminished confidence about where Suffolk is headed in the future, she said.
Suffolk County is the eastern half of Long Island. With 1.5 million residents, it is the most populous county in New York outside of New York City.
In the fall the staff of New York Comptroller Thomas DiNapoli named Suffolk County the third most fiscally distressed local government in the state out of more than 1,000 counties, cities and towns.
