Moody's Investors Service has cut the rating on Nassau County's $1.4 billion of outstanding general obligation debt to A2 from A1, based on the county's weakening financial position.
The outlook has been revised to stable from negative.
Moody's analysts said that the county's financial position has continued to weaken in fiscal 2011 and expects that the fund balance will continue to decline in fiscal 2012.
"The rating also incorporates the county's significantly reduced liquidity, weak governance practices, and significant exposure to variable rate debt and interest rate swaps," analysts said in a report.
Positive factors supporting the rating include oversight from the Nassau County Interim Finance Authority, a large and wealthy tax base, and a manageable debt position.
NIFA moved to a hard control board on Jan. 26, 2011, and has the ability to approve or deny the county's borrowings.
"The stable outlook reflects the expectation that the county's financial position and liquidity will not deteriorate materially from their currently weak levels," the report said.
At the same time, Moody's downgraded to Baa1 from A3 the county's $13.1 million of Regional Off-Track Betting Corporation revenue bonds.
The NROTB bonds are secured by payments made by Nassau County.
"The Baa1 rating is linked to the county's credit quality, and reflects appropriation risk and non-essentiality of the financed asset," analysts said.
Nassau County, located in western Long Island, is rated A-plus by both Standard & Poor's and Fitch Ratings.
Standard & Poor's has assigned a stable outlook, and Fitch assigns a negative outlook.