The bad news is that Moody's Investors Services downgraded the Village of Mineola's bond rating from an A2 to an A3. The good news is it could have been a lot worse.

A bond rating is based on a village's financial condition and determines the interest rate the village receives when converting all of its bond anticipation notes (BANS) into long-term serial bonds.

One of the initiatives in the village's 2003-2004 fiscal year budget, Jack M. Martins' first as mayor, was converting the village's short-term debt of $20 million in BANS into long-term 20-year serial bonds.

The theory behind the initiative was to lock in all of the short-term debt into long-term debt while interest rates are at historic lows. As part of the process, the village's financial situation would be reviewed by Moody's, which would issue an evaluation that ultimately would determine the interest rate the village would be paying on the $20 million.

Representatives from Moody's met with village officials including Mayor Martins face to face for about two hours on Wednesday, Aug. 6. Mayor Martins said the representatives from Moody's were well aware of the village's financial situation.

"The fact is they take a snapshot of where the village is right now and quite frankly and quite honestly, from their point, the village is not an A2," said Mayor Martins.

The village had received an A2 rating from Moody's in 1998. However, since then, the village's debt level has risen significantly.

As a result of the village's current financial situation, Moody's downgraded the village from an A2 to an A3, which is a slightly lower bond rating.

Among the reasons cited for downgrading the village was a lack of a significant fund balance. Normally, a fund balance should be about 6 or 7 percent of the village's overall budget. The village's is just about 1 percent of its budget.

"The downgrade to A3 reflects the narrowing of General Fund reserves to an estimated undesignated $252,000 million (1.7 percent) at year-end 2003, as compared to the fiscal year position of 3.2 percent. The General Fund cash position at year-end 2002 was extremely limited and is expected to worsen in 2003, although the village was able to use interfund transfers for cash flow purposes," stated the Moody's report on the downgrade.

Another reason cited for the downgrade was the rising debt levels. In 1998, the last time the village went before Moody's, the village had about $10 million in bonded debt. Currently, the village has about $33 million in outstanding debt.

About a week after meeting with Moody's, the village received the interest rate it would be getting on the $20 million debt it would be converting from short-term BANS to long-term serial debt. The interest rate turned out to be 4.4858 percent, a rate Mayor Martins is pleased with. "It's the best rate the village has ever gotten for long-term rates," he said.

Had the village maintained its A2 rating, it would have received a slightly lower interest rate, perhaps approximately 4.4358 percent. "The difference is relatively minor but I don't like the idea of being downgraded at all," Mayor Martins said.

Although Mayor Martins did not like the downgrade, he believes it could have been worse. Had the village not taken certain steps in its 2003-2004 budget, Mayor Martins believes the village would have been downgraded further.

One of the major steps taken in the village's 2003-2004 fiscal year budget was moving the Sewer Department out of the Water Fund and back into the General Fund.

The Sewer Department had been funded by the General Fund up until 1999 when it was put into the Water Fund. According to Moody's, that decision resulted in a "significant deterioration in the water fund financial position."

As part of the 2003-2004 budget, Mayor Martins felt it was necessary to move the Sewer Department back into the General Fund in order to make the Water Fund financially stable.

Another step taken in the 2003-2004 budget that may have been looked upon favorably was the discontinuation of borrowing for non-capital items such as tax certiorari payments.

"Moody's has an optimistic view of the village's future. They're comfortable with where we are going. As long as we continue with the same policies, they feel we'll be in great shape," Mayor Martins said.