Fitch Rates Monroe County, New York GOs 'BBB+'; Outlook Revised to Negative.

NEW YORK -- Fitch Ratings assigns a 'BBB+' rating to Monroe County, NY's $74,915,000 public improvement bonds series 2005. The bonds are scheduled to price competitively on July 7th and are full faith and credit obligations of the county payable from an unlimited ad valorem tax on all taxable property within the county. Fitch affirms the 'BBB+' rating on the county's $416 million outstanding general obligation (GO) bonds. Bond proceeds will be used to redeem outstanding bond anticipation notes, in addition to various capital improvement projects related to roads, county buildings, and facilities. The Rating Outlook is revised to Negative from Stable.

The 'BBB+' rating reflects Monroe County's weak financial position, evident in three years of accumulated audited general fund deficits. While the county has clearly moved away from historical reliance on one-time revenues and has demonstrated willingness to make structural revenue and expenditure adjustments, the revision of the Rating Outlook to Negative reflects the lack of progress to date in achieving a positive fund balance in accordance with generally accepted accounting principles (GAAP). Downward pressure on the rating can be mitigated by the successful achievement of balanced operations in 2005, as projected, and the implementation of further actions in 2006 to start to build fund balance. The county's fundamental credit strengths supporting the 'BBB+' rating include manageable debt levels and capital needs, rapid amortization rates, and a diverse economic base showing stability and resilience.

The county continues to exhibit many high-grade credit characteristics, including its status as one of upstate New York's key economic centers. The presence of several large and notable manufacturing companies, as well as sizable higher education and health care facilities, adds to the stability of the economic base. The county has withstood large layoffs of major employers through the creation of jobs in business and health services, consistent with a general shift away from manufacturing. The current local labor market conditions, although weakened due to the prolonged recession, may reflect some improvement. The county's average unemployment rate, at 5.4% in 2004, has been consistently below state and national averages. Per capita income in 2003 was 92% and 106% of the state and national average, respectively.

Similar to most counties in New York State, Monroe County's fiscal operations have been pressured in recent years by rising pension costs, health insurance premiums, and Medicaid costs. Historically, the county has drawn down fund balance to support low tax rates, resulting in a cumulative fund deficit. The 2004 property tax increase and expenditure cuts were not of sufficient magnitude to offset the change in accounting for all state pension payments. The fiscal 2004 GAAP general fund deficit represents approximately 5% of spending. The leading budgetary pressures stemming from social service programs may potentially lead to another deficit ranging from $7 million to $13.8 million in the current year. However, county management officials have targeted cost cutting measures to achieve break-even operations by year-end 2005, with no reliance on one-time revenues. Management is also currently reviewing revenue enhancement and spending reduction options in response to the fiscal 2006 estimated $40 million cumulative deficit that is projected to be eliminated within the next three years.

Overall debt levels are moderate at $1,972 per capita and 4.5% of taxable market value. The debt service burden on the budget was low at 3.2% in 2004. For the $355 million capital plan funding needs through 2011, the county plans to issue approximately $175 million in bonds, which will keep debt levels manageable given the rapid amortization rate of 79% in 10 years. Furthermore, approximately $75 million of revenue anticipation notes are expected to be issued in the fall, lower than the $90 million in 2004.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.