The town of Halfmoon’s credit rating has been downgraded by Moody’s Investor Services, which cited its spending-down of surplus funds over the past five years.
The town of 22,000 people, for decades one of the fastest-growing in Saratoga County, had its rating downgraded Thursday from Aa2 to Aa3, with a negative outlook.
The news comes just two weeks after Moody’s downgraded Saratoga County government’s rating from Aa1 to Aa2, also citing its spending of reserve funds to support operating budgets.
Moody’s said in January it was re-evaluating 256 communities across the country, including Saratoga County and Halfmoon, using new criteria that includes weighing local reluctance to raise taxes.
All Aa-rated investments are considered by Moody’s to be high quality and low-risk, but Aa3 is the lowest Aa rating. The downgrade could lead to higher interest rates on town borrowing in the future.
“I’m not happy with any downgrade of our rating, but Aa3 is still above average, and no new borrowing is anticipated,” said town Supervisor Kevin Tollisen.
The town has about $40.3 million in debt for capital projects, including its town hall, a town park, the water treatment plant and several water line extensions.
Moody’s, in a summary of its rating rationale, wrote that the Aa3 rating “reflects the town’s reduced financial position that has experienced a five-year decline in reserves” that were used to cover operating deficits.
The town’s financial strengths include a stable tax base, average wealth levels, and a “manageable” level of debt, Moody’s found. But it also said the town is too reliant on “economically sensitive revenues” — its share of the county sales tax and the mortgage recording tax.
A state comptroller’s audit last summer also criticized Halfmoon for spending millions in surplus funds in recent years to support daily operations.
But Tollisen, a Republican who was elected last November and became supervisor in December following the resignation of Mindy Wormuth, said the town’s financial picture is improving.
The ratings agency considered the 2007 to 2012 budget period, but Tollisen said the year-end figures for 2013 — while not yet final — will show the town eliminated a $500,000 Highway Department deficit, and the unallocated fund balance will increase from $70,000 to $470,000.
The town budget for 2014 totals about $14.3 million. There are already concerns it could be out of balance.
The town’s mortgage recording tax revenue is about $286,000 less than anticipated so far this year. Tollisen said he has imposed a freeze on discretionary spending, and there could be other modifications to the budget if revenues don’t improve.
“We’re very aggressive in trying to control town spending,” he said.
Moody’s said the town’s rating could go up again if in the future it adopts balanced budgets, increases reserves and becomes less reliant on economically sensitive revenue sources.
Tollisen acknowledged Moody’s officials are implying that the town would benefit if it re-established a property tax as a stable source of revenue.
“I am opposed to that,” he said. “I would like to avoid that if possible.”
Relying primarily on county sales tax revenue, Halfmoon has operated without revenue from a general or highway property tax since 1986.