News: S&P Lowers Oyster Bay’s Bond Rating
(Long Island, N.Y.) Standard & Poor’s lowered the Oyster Bay general obligation bonds’ long term rating from ‘AAA’ to ‘AA’ this week. A general obligation bond is a bond that is secured by a local or state government. It insures that the bondholders are repaid by the government with legally available resources that include tax revenues.
In addition to the rating change, reports claimed that the outlook for the bonds was negative. S&P, a company that publishes research on stocks and bonds, also stated that there was significant deterioration in the town’s financial position. Part of the dismal outlook for the bonds’ future comes from a lack of planning to improve the town’s financial position.
“AAA” is a rating that is used to describe an issuer of bonds as having an ‘extremely strong’ capacity to meet its financial commitments. “AA” is a rating that suggests the issuer has a ‘very strong’ capacity to meet them. While some claim that the difference is only a small degree, many feel that even the slightest reduction can be a precursor to more downgrades in other areas of the economy.
Sources stated that the town of Oyster Bay officials planned to fix the problems without raising taxes. They also claimed that the plan would not include laying off employees or cutting services as a tactic to create revenue. Many believe that the bond rating change could cost more money for the taxpayer and the town due to a possible increase in interest rates on general obligation bonds.
The Town Supervisor stated that the town is in its current position due to the economic downturn. Reports stated that the town used its excess savings to keep business transactions and operations running smoothly. Sources claimed that the supervisor attributed a decrease in mortgage tax and sales tax revenue as the source of the problem, while admitting that a plan to offset the losses was needed.
Reports stated that in 2005 the town of Oyster Bay had over $20 million in reserve cash. In the last few years that number has fallen below $500,000. The drastic decrease is the likely cause of the town’s lowered rating from S&P’s credit analysts. It was noted among the town’s financial merits that Oyster Bay has high income levels, a moderate debt burden, and a diverse property tax base.
In 2009 the Town Supervisor released a statement that commended the town for receiving an increase in their rating from ‘Aa3’ to ‘AAA’. Sources claimed that the increase had shown potential bondholders that the town had healthy budget operations. It was also emphasized that bonds would become desirable, and the interest rates paid by taxpayers would be lowered.
This news comes as United States lawmakers have reached an agreement about raising the borrowing limits. Had an agreement not been reached, United States Treasury Bonds could have been downgraded. The rating agency has stated that the United States is on review for a possible downgrade as well, but is expected to keep its ‘AAA’ rating for now.
