Hardy Plumbing
April 20, 2011

In Good With Moody's

They affirmed a stellar rating affording the town the chance to sell bonds at a lower rate.

Officials in Southampton Town Supervisor Anna Throne-Holst's administration have been bemoaning a stressed state of town finances since last year. Only recently, during her state of the town address, did the supervisor note improvement. News from Moody's Investors Service last week provides still more evidence of an upswing.

Moody's assigned an Aa1 rating to the town's serial bonds, resulting in a 2.84 interest rate on the borrowing over 10 years.

Town comptroller Tamara Wright said she was pleased at the confidence the market showed by offering to buy town bonds at a below three percent rate. "Another rise in municipal interest rates over the past few weeks led me to expect a rate in excess of three percent," she said.

As the national economic downturn progressed, in 2009 Southampton Town, along with scores of municipalities, was placed on the credit watch list for a possible downgrade of its Aa1 rating. Last year, the town's rating was diminished, to Aa2. It was restored within two months, however.

According to the report issued by the credit rating agency, the Aa1 rating reflects Moody's expectation that "despite the significant deterioration of the town's financial flexibility in previous years," its financial position will continue to stabilize. Moody's notes a projected $3.8 million added to operating reserves "due in large part to a relatively new management team's ability to correct the town's internal accounting procedures and controls coupled with the adoption of formal policies and procedures intended to insure conservative and transparent financial management going forward."

Southampton's affluent tax base and still-high housing values and its relatively low debt burden counteract the diminished financial flexibility. "Future rating actions will heavily weigh management's performance to its deficit reduction plan and ability to maintain structurally balanced operations," the report points out.

Moody's listed the use of reserves during 2007 and 2008 for one time capital expenditures that drained fund balances past the desired level of 20 percent as a factor in the town's reduced flexibility. So, too, did a revised surplus policy that calls for maintaining reserves of 15 percent compared to the prior 25 percent.

The service also looked at Southampton's self-imposed five percent cap on annual property tax increases as a limitation that could lead to a decline in sources of revenue.

Moody's believes the town's large, primarily residential $55.8 billion tax base is still vulnerable to current economic vicissitudes, especially given the number of residences that are second homes. That the value of the homes has remained stable is a plus.

"We have been repeatedly cited on the downsized levels of our reserves and weakened reserve policies, as well as the need to adhere to the discipline of truly structurally balanced budgets," Throne-Holst said last week. The report from Moody's "furthers my commitment to address and rectify these areas of the town's financial management," she said.


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