East Hampton, New York, which counts comedian Jerry Seinfeld and entrepreneur Martha Stewart as residents, had its credit rating lowered by Moody’s Investors Service because of drained reserves and projected borrowing.
Moody’s cut East Hampton’s rating one level to A1, its fifth-highest investment grade, from Aa3, affecting $85 million of outstanding debt. The downgrade may raise its borrowing costs and comes as the community of about 22,000 plans to sell $14.5 million of securities. Moody’s said the town may issue as much as $30 million in debt to cover accumulated budget deficits.
“The rating downgrade reflects depletion of the town’s financial reserves following four consecutive operating deficits” in 2004 through 2007, Moody’s said in a report.
East Hampton’s budget problems stem from “significant and growing” spending for employee benefits, which weren’t offset by property-tax and fee increases, Moody’s said. In 2008, the town spent $2.5 million more on health insurance than planned after public-employee unions blocked a restructuring of benefits, Moody’s said.
The collapse of the U.S. real-estate market has also reduced mortgage-tax receipts. East Hampton projects a combined deficit of $20 million to $30 million at the end of 2009, even as it raised property taxes 24 percent in 2009 and overhauled employee benefits, Moody’s said.
The rating company also revised its outlook for the town to stable from negative.