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Feb 24, 2010 12:16 PMPublication: The Southampton Press

Moody's downgrades Southampton Town's bond rating

Feb 24, 2010 12:16 PM

Moody’s has downgraded Southampton Town’s bond rating from Aa1 to Aa2, a change that will affect how much the municipality pays in interest on money it will borrow in the future.

The agency, which is based in Manhattan, brought the rating down a notch because the town’s fund balance reserves have deteriorated, according to Town Comptroller Tamara Wright. The change in status will result in a small increase in the town’s interest rates on future bonds, she said.

The town’s fund balance—its assets minus its liabilities—fell from $16.7 million in 2007 to $10.6 million in 2008. Moody’s Investors Service looked down on that, according to an opinion it gave the town on February 17.

“The downgrade reflects the town’s deteriorated financial condition due to the use of operating reserves ... for one-time capital spending in recent years and two one-time accounting adjustments,” the opinion states.

In the past, the town used money in its operating reserves to pay for projects and to fix accounting errors, financial practices that contributed to the financial crisis the municipality found itself in last year. While the town comptroller’s office was implementing new, improved accounting procedures, it discovered that money had not 
been properly transferred to the accounts and funds that it should have, which led to a minor panic over the location of millions of dollars. Town officials later discovered that no money was missing, but that there is a $5 million deficit in the capital line of the budget.

The town’s self-imposed 5-percent limit on property tax increases is also poor policy in Moody’s eyes, as it limits the town’s ability to raise revenues by a substantial amount and also could lead to declines in revenues from taxes.

Ms. Wright said that she will be discussing the fund balance reserve policy with town officials in the future.

“I believe it is advisable to reconsider the General Fund Balance Reserve Policy,” she wrote in an e-mail. “The Town Board plans to do so over the next few months and will decide if any changes are in order.”

Town Supervisor Anna Throne-Holst emphasized that the downgraded rating is not the worst possible outcome following the recent fiscal crisis.

“It’s a minimal downgrade,” she said. “They had indicated that it would be far more of a downgrade than that.”

Standard & Poor’s, another credit rating agency, is in the process of reevaluating Southampton Town’s financial health. The town currently has a rating of AAA, the highest possible with Standard & Poor’s.

The highest rating Moody’s can bestow is an Aaa rating.

Moody’s and Standard & Poor’s placed the town on a credit watchlist in August 2009, a few months after the financial crisis was discovered, according to a press release issued by Ms. Throne-Holst.

The drop in rating may mean that the town will suffer a five basis-point increase in its borrowing interest rate, according to a press release written by the supervisor’s spokeswoman, Jen 
Garvey. That would equate to about a 0.05-percent hike in rates, Ms. Wright said. The comptroller said the average interest rate on bonds is about 3.5 percent, so with the new Aa2 rate, the 
town’s rates would climb to 3.55 percent.

Those estimates were provided to Southampton Town by its financial advisors, Munistat Services of Port Jefferson Station, Ms. Wright said.

The change in status—and resulting uptick in interest rate—will affect payments on the town’s bonds for road work, for example. Over a period of 15 years, the life of the $2 million bond, the 0.05-percent rate increase will result in an extra $8,115, or $541 per year, the town will have to spend, Ms. Wright explained.

The town’s affluent tax base and high home values prevented the bond rating from falling further than it did, according to the Moody’s opinion. Ms. Wright and the comptrollers’ office staffers were another key component in keeping the rating relatively high, the report states.

“The rating heavily factors a new management team’s swift and effective response to correct the town’s internal accounting procedures and controls ...” the opinion states. “The rating also reflects our expectation that management will be successful in restoring the town’s fiscal health ...”

Ms. Throne-Holst and Ms. Wright had been anticipating Moody’s announcement since they met with the rating agency in Manhattan several weeks ago.

Moody’s also took issue with the Town Board’s 2008 decision to lower the amount it keeps in its fund balance reserve from 25 percent of the operating budget to 15 percent. That move “weakened the town’s financial policy,” the opinion states.

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Lucky it wasn't more than one level. You have a police arbitration coming up and no union cooperation to either defer a raise or go for a payroll lag.
By diogenes (57), westhampton on Feb 19, 10 10:57 AM
How do you know? Are you a party to contract negotiations?
By Bayman1 (297), Sag Harbor on Feb 19, 10 2:45 PM
This is the legacy of years of fiscal misrule by the Heaney and Kabot administrations, one more bit of fallout from the financial disaster caused by their inattention and incompetence. It's what happens when either party holds power for too long. The important thing now is for Southampton voters not to prolong the agony by giving the Republicans a 4-to-1 Town Board majority in the March 9 special election. A vote for Bridget Fleming, endorsed by the Democrats and the Independence Party, will ...more
By Turkey Bridge (1979), Quiogue on Feb 19, 10 4:07 PM
3 members liked this comment
Thank goodness we have someone who is competent at the helm and has assembled a team of PROFESSIONALS who know what they are doing. Can you imagine how large the penalty (lower bond ratings and higher interest rates) would have been if the town continued under it's old processes? What I don't understand is how some of the same people who got us into this jam are still in office. Are some voters really that devoted to their party that they are willing to sacrifice their own self-interests and pay ...more
By barberosa (39), Watermill on Feb 20, 10 12:30 PM
yes thank you linda kabot for bringing in the people necessary for fixing the capital mess and getting rid of those who caused it. thank you for bringing to the public's attention rather than hiding it as suggested by others in power. lets just hope that the town comptrollers office doesnt let this happen again.
By ridiculous (214), hampton bays on Feb 21, 10 1:21 PM
2 members liked this comment
Stop trying to overdevelop this town
By deKooning (106), southampton on Feb 22, 10 9:11 AM

Linda Kabot's opponents took great pleasure in tying her to the horrific fiscal mess when it is now obvious that all these fiscal improvements were envisioned done during Kabot's time. It was she who wiped the slate clean in the Comptroller's Office Management staff.

The improvements took almost her entire tenure as Supervisor to erect, leading to a reversal of Heaney's catastrophic financiao stewardship! The Town owes a debt of gratitude to Ms. Kabot who fixed the mess. We should ...more
By Observant (14), southampton on Feb 23, 10 9:11 AM
This downgrade shows clearly that we aren't by any means out of the woods yet on the Republican money fiasco. It really is painful to realize that we taxpayers will continue to pay for this crowd's misdeeds through increased debt service, in addition to all the other ways it continues to hit us.
There couldn't be a plainer indication that we need to elect Democratic & Independence Party candidate Bridget Fleming to the Town Board in the March 9th special election. Ms. Fleming is running against ...more
By Turkey Bridge (1979), Quiogue on Mar 1, 10 3:59 PM
2 members liked this comment
actually the years in question where there were questionable accounting practices were democratic controlled. fortunately just incompetence in the comptrollers office as evidenced by brookhaven's chief fiscal officer being demoted to deputy just recently
By ridiculous (214), hampton bays on Mar 4, 10 8:30 PM
increased debt service? there was no bonding in 2009 and ATH is already pushing for an additional 3Million in spending and bonding. and the one level decrease does not affect interest rates on bonding. do your research turkey. if you read the report from moodys available on their website you will see the downgrade happened for another reason not the capital fund, which by the way they were very impressed with how the previous supervsior handed the situation and corrected it swiftly.
By ridiculous (214), hampton bays on Mar 4, 10 8:34 PM
Hey sure - just elect another one who doesn't know James Bond from a Capital Bond. Bill Hughes thinks he can balance the town's books monthly on the back of an envelope - just like he and his wife do their checkbook (together) each month. Whoeeee! The depth of his knowledge is staggering. The Southampton Town Council is not the place to practice for a "Law & Order" episode either.
By foodie (74), Remsenburg on Mar 1, 10 5:35 PM
1 member liked this comment
Unfortunately, both candidates don't have the qualifications to resolve this mess. Taxpayers lose again.
By nellie (451), sag harbor on Mar 1, 10 11:26 PM

Turkey Bridge: I find most of your posts factual and on point except your inclusion of Linda Kabot with the Heaney fiscal catastrophe, where you are totally off track. If you examine the wanton overspending in the Town as well as the incompetent accounting and financial mismanagement, you will find all these happened during Skip Heaney's years as CFO/Supervisor, not Kabot's!

You don't serve your cause well by focusing on Kabot erroneously. If you review the Press coverage and the past ...more
By Observant (14), southampton on Mar 2, 10 12:42 PM
Thank you, Observant, for the positive comments and thanks also for the pertinent caution that straight factual material can lose credibility if coupled with partisan spin. Along that line, I'm willing to concede that Skip Heaney bears a far larger share of the responsibility for our sorry state than does Linda Kabot, and that Ms. Kabot did take remedial steps beginning in 2009. I can't wholly absolve her, however, because at that time she had held high office in Southampton for thirteen years, ...more
By Turkey Bridge (1979), Quiogue on Mar 2, 10 1:32 PM
Sorry, cut myself off there. Picking up from what's posted immediately above, I was saying that events of just this year furnish specific examples of why we should elect Bridget Fleming to the Town Board instead of Bill Hughes, who is more of the same Republican/Conservative obstructionism:
[1] Republicans and Conservatives on the Town Board repudiated their agreements about a full public screening for prospective Planning Board members and jammed their guy through over unanimous public opposition. ...more
By Turkey Bridge (1979), Quiogue on Mar 2, 10 1:54 PM

To Turkey Bridge: Re: Linda Kabot

"I can't wholly absolve her, however, because at that time she had held high office in Southampton for thirteen years, ... more first as Executive Assistant to a Supervisor (acknowledged to be Vince Cannuscio's right hand), then as a Town Board member, and finally as Supervisor herself. It seems she has to take part of the blame, if only for not discovering the mess sooner -- how large a part is an open question."

This is my last post on this ...more
By Observant (14), southampton on Mar 2, 10 3:45 PM
Maybe we'll actually get some small relief from the Republican mismanagement that so concerned Moody's -- the Southampton Press today endorsed Bridget Fleming for Town Board, saying she'll "provide counterbalance on a board leaning hard to the right" (amen), and "Ms Fleming's focus is on creating jobs, and she has already taken steps to meet with officials at the state and national levels to talk about what can be done."
So, there it is. The Press joins the parade of endorsers for Bridget Fleming. ...more
By Turkey Bridge (1979), Quiogue on Mar 4, 10 7:01 PM
The parade just keeps going on. Now The Independent newspaper has endorsed Bridget Fleming, too.
By fidelis (199), westhampton beach on Mar 5, 10 9:36 PM
I'm sure Moody's will consider her or election and the Independent's weak endorsement when they rate the Town's bonds. Give me a break.
By nellie (451), sag harbor on Mar 6, 10 8:28 PM
Your comment sure sounds like sour grapes to me, Nellie.
By fidelis (199), westhampton beach on Mar 6, 10 8:42 PM
I'm puzzled by what Nellie means by "the Independent's weak endorsement" of Bridget Fleming. Granted, they mentioned a tendency to platitudes that are not always right, but they also said "there is much to like about Fleming: she's obviously extremely bright, she honestly cares about the community, and she's a hard worker." The Independent also picked up on the theme that the Southampton Press stated in endorsing Ms. Fleming, which is that she will add a different voice from that of the Republicans ...more
By Turkey Bridge (1979), Quiogue on Mar 7, 10 10:19 AM
1 member liked this comment
How anyone can expect Moody's to consider the above in a bond rating is absurd. Unfortunately, IMO, neither candidate will bring any much needed financial expertise to the Board. Both candidates are weak. I would like balance too but I do not think Fleming is a good choice. If she wins I hope she proves me wrong by not being just a party stooge and shows she can think for herself. The same goes for Hughes if he wins. I want what is best for the Town and not a political party but I do understand ...more
By nellie (451), sag harbor on Mar 7, 10 3:33 PM
You're right in what you say in this last post, Nellie. My criticism was, as I think you know, about your speaking of "the Independent's weak endorsement" of Bridget Fleming. There, you were wrong. It was not at all weak, as I showed above, but you didn't respond to that. You tried some lame spin, and you were called out on it. No big deal.
By Turkey Bridge (1979), Quiogue on Mar 9, 10 10:49 AM