Fitch Rates Nassau County, New York's $125MM GOs 'A+'; Outlook to Stable.

NEW YORK -- Fitch Ratings assigns an 'A+' rating to Nassau County, NY's (the county) approximately $100 million general obligation (GO) bonds, series 2008A and $25 million GO bonds, series 2008B. The bonds are scheduled to price Jan. 15, 2008. Bond proceeds will be used to redeem outstanding bond anticipation notes (BANs) and to finance various capital improvement projects. In addition, Fitch affirms the 'A+' rating on the county's approximately $537 million in outstanding GO bonds and Nassau Health Care Corporation's (NHCC) approximately $296.2 million outstanding county-guaranteed bonds. The Rating Outlook is revised to Stable from Positive.

The revision in Outlook to Stable from Positive reflects Fitch's belief that the county's credit characteristics are likely to remain consistent with the 'A+' rating over the next one to three years. The 'A+' rating on the county's outstanding GO bonds reflects the marked improvement in the county's financial condition since its fiscal crisis experienced at the beginning of the decade, resulting from the institutionalization of strong financial management practices. Other positive credit characteristics include a broad and wealthy economic base, high income levels, and moderate debt levels with above-average amortization rates. Credit concerns center on a high fixed-cost burden, borne by all counties in the state, financial exposure related to the NHCC, and a consistent trend of over-budgeting sales tax receipts, which is the county's largest revenue source. While sales tax revenue continues to demonstrate moderate growth annually, Fitch believes the variance between budgeted revenue assumptions and actual collections over the last several years is a vulnerability.

Encompassing the western portion of Long Island, Nassau County's 2006 estimated population of 1.3 million residents has remained relatively unchanged since the beginning of the current decade. The county's economy benefits from its proximity to the New York City metropolitan area as well as its own broad employment base and diverse and wealthy tax base. The county's unemployment rate of 3.5% in October 2007 measured well below that of the state (4.4%) and the nation (4.7%). Wealth levels are well above average; in 2005 per capital income equaled 132% and 149% of the state and national levels, respectively.

Fitch believes that the county's 2008 budget and 2008-2011 multi-year financial plan (MYP) are less conservative than in past years, exhibiting continued reliance on speculative cost saving measures, many of which require state legislative approval. Further, the out-years of the MYP rely on the assumption that recurring revenues will be raised through property tax increases, which the county has deferred for the last several years. Fitch notes however, that the county has been successful in closing the forecasted budget gaps in each MYP submitted since fiscal 2002, primarily through much improved financial management, achieving labor concessions, and a state-imposed cap on annual growth in Medicaid expenses. The county expects to end fiscal 2007 with a minimal operating surplus across all major operating funds of approximately $13 million. Year-to-date growth in sales tax receipts (as of Dec. 13, 2007) over the prior year stands at 1.2%, notably lower than the 3.4% assumption included in the adopted 2007 budget, which creates a budget variance of approximately $27 million. While Fitch believes management has been proactive in addressing the shortfall, the 2.5% growth assumption included in the fiscal 2008 budget could present another negative variance given the recent trend in sales tax performance. This risk is partially offset by a small budgeted contingency and other potential cost saving measures outlined by management.

The county's debt burden, including the outstanding debt of the Nassau County Interim Finance Authority and the county's underlying municipalities and school districts, is moderate at 3.8% of market value. The county's 2007-2011 capital improvement plan totals $786 million, to be funded primarily through annual county debt issuance. Debt amortization is a credit strength, with 76% of principal retired within 10 years.

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