Southold Town has been assigned an Aa1 credit rating from Moody’s Investor Service, allowing it to refinance its existing debt and save an estimated $1.3 million in interest, town comptroller John Cushman told town board members yesterday.
The town will look to refinance its existing $39.2 million in general obligation debt next month, Cushman said. Southold just completed a new $4.6 million bond issuance at an interest rate of just under 2 percent, he said.
Supervisor Scott Russell said he and Cushman met with Moody’s a few weeks ago. The credit agency subsequently issued a credit opinion, dated Aug. 10, assigning the town the Aa1 rating.
The Aa rating is assigned to issuers that “demonstrate very strong creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues,” according to Moody’s. The numerical modifier 1 indicates that the obligation ranks in the higher end of its rating category. An Aa1 rating is the second-highest rating assigned to municipal issuers. The top rating, AAA, demonstrates the “strongest creditworthiness relative to other U.S. municipal or tax-exempt issuers.”
Southold’s Aa1 rating “reflects the town’s stable operating performance, sound reserve and liquidity levels, sizable tax base, strong resident wealth indicators, low debt burden and average pension liability,” Moody’s said in the opinion. “The Aa1 rating also takes into account the town’s strong management, which has a track record of conservative budgeting and financial practices.”
The town has demonstrated stable financial operations over the five years ending 2014 in its combined operating funds, Moody’s said. Available reserve levels have consistently remained strong over that same time period, the agency found, averaging 27.6 percent of operating revenues.
The ratings agency did not assign an “outlook” to Southold’s credit. “Outlooks are usually not assigned to local government credits with this amount of debt outstanding,” Moody’s said in the opinion. But the opinion gave the town’s fiscal prospects a positive assessment.
“Given management’s conservative budgeting practices, the town will likely maintain a financial position that continues to be in line with the rating category,” according to the credit opinion.
Analysts noted to the town’s strong tourism-based economy and a growing retirement population that will benefit hospital and health care facilities. The opinion pointed to the $44 million expansion of Peconic Landing and the Heritage at Cutchogue as recent development activity that will have a positive impact on the local economy.
Southold ended fiscal year 2015 with a $1.1 million operating deficit, “mainly due to the phase-out of the town’s self-funded health insurance plan, which resulted in $600,000 of general funds being redistributed among other funds,” Moody’s noted. An “agressive” road paving program resulted in the use of highway fund reserves. But the town’s “available fund balance will remain healthy at $8.6 million or 24.8 percent” and Moody’s said it expects the town to maintain reserves and liquidity at satisfactory levels.
Moody’s last issued a credit opinion on a Southold Town bond issuance in 2011, according to the firm’s website, when it reaffirmed the town’s Aa2 rating for a new bond issuance and existing debt.
How does Southold Town’s Aa1 credit rating compare to other municipalities in Suffolk County?
- Southampton AAA (outlook stable)
- Islip AAA (outlook stable)
- Huntington AAA (outlook stable)
- East Hampton Aa1 (outlook positive)
- Babylon Aa1
- Smithtown Aa1
- Shelter Island Aa2
- Brookhaven Aa2 (outlook positive)
- Riverhead Aa3
- Greenport Village Aa3
- Suffolk County A3 (outlook negative)
