Moody's downgrades Valley Stream's bond rating to junk

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Moody’s Investors Service, an investment advisory firm that issues loan risk assessments grades, downgraded the Village of Valley Stream’s bond rating on Feb. 15 from Baa3 to Ba1. The agency said its outlook remains negative, citing low expectations for an immediate recovery.

The downgrade means that the village’s bond rating has officially fallen into the junk category, and is considered an investment liability. The status could lead to increased borrowing costs going forward.

“We are aware of Moody’s latest downgrade,” Mayor Ed Fare said in a statement. “While Moody’s may not share our vision at this time, we are confident in our plan, and believe that we have turned the corner in fiscal responsibility. Our residents, not Wall Street investors, have always been our priority. We are convinced that we will meet this fiscal challenge.”

In its report, Moody’s cited a worsening negative fund balance, “with no sign of an immediate turnaround.

“Cash, however,” the report continued, “remains adequate.”

The downgrade marks the latest step in a precipitous decline in the village’s bond rating since 2013, when it was rated Aa2, the third-highest the agency issues, falling nine categories to its current rating.

In the report detailing its decision, Moody’s cited years of operating deficits that “have completely eroded the village’s once healthy finances.

“These balance-sheet declines stem from a fundamental inability to balance revenues and expenditures,” the report read.

Village officials have said that the declining fund balances have been driven largely by tax refunds, according to the report, but it also cites numerous other factors, such as a debt service budgeting error in 2016 and an underestimation of employee benefit expenses by 7.6 percent in the village’s final budget for fiscal year 2017.

In 2016, facing a shortfall of $2.5 million, the board of trustees voted to pierce the state’s 2 percent tax-levy cap and increase its tax levy by 6.8 percent.

Although audited 2018 figures are not yet available, the report added, Moody’s said it expected a deficit of roughly $672,000 for the current fiscal year, which it described as “disappointing” given the implementation of several cost-saving measures, such as a reduction in tax-refund expenses.

Additionally, the report cites the village’s diminished reserve balance, which is down 61 percent since 2012, as contributing to its rating.

Moving forward, the agency suggested that village officials more accurately project year-end expenses and revenue.

Fare said that the board of trustees had planned to meet to discuss the downgrade on Tuesday, after the Herald went to press.

Melissa Koenig contributed to this story.