Moody's has changed its outlook to negative on the general obligation bonds of Huntington, N.Y., because of the town's practice of deferring one-third of its annual pension obligations.
About 200 municipalities in New York state have deferred such payments to keep their general budgets funded under a program begun in 2010.
Participating in the program comes with a cost. The delayed payments are essentially loans that must be paid with interest. The New York Times reported last year that more than $43 million had been deferred.
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Adding to the problem for municipalities is the fact that the state has increased the payments it requires to keep the state's pension fund solvent. The state fund has been rated the best in the nation with more than 90 percent of its liabilities funded.
Moody's laid its doubts about Huntington's future squarely on its pension funding.
"The negative outlook reflects the town's amortization of approximately 33 percent of the required pension contribution in 2012," the ratings service said in its announcement. "This practice of deferring current operating expenses to future period is inconsistent with our view of strong financial management. Continued amortization of annual pension payments could result in a downgrade to Aa1."
Still, Moody's assessment of the Long Island town with a population of about 200,000 of was not all grim.
"The Aaa rating reflects the town's solid financial position with currently healthy reserves, (a) wealthy tax base that is expected to experience slowed growth given softening of the residential real estate market, and low debt burden with a manageable capital program," Moody's said.
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