Fitch Rates Nassau County, New York's $75MM GO RANs 'F1+'; Affirms L-T GOs at 'A+'; Outlook Positive.

NEW YORK -- Fitch rates Nassau County, New York's (the county) approximately $75 million revenue anticipation notes (RANs), 2007 'F1+'. The RANs are expected to price competitively on July 25, 2007. Proceeds will be used to provide monies to meet a cash flow deficit expected to occur during the period that the RANs are outstanding. Additionally, Fitch affirms the 'A+' rating on the county's approximately $578 million in outstanding general obligation (GO) bonds and Nassau Health Care Corporation's (NHCC) approximately $264 million outstanding county-guaranteed bonds. The Rating Outlook on the county's long-term debt is Positive.

The 'F1+' rating on the county's RANs reflects adequate projected coverage on the repayment date, significant levels of borrowable funds, and management's demonstrated ability to respond quickly to budget shortfalls and unexpected expenditure constraints. Coverage on the May 30, 2008 re-payment date is based on pro forma 2008 cash flows of the county's five major operating funds, and is adequate at 2.84 times (x), excluding over an estimated $162 million in borrowable liquid resources from other funds, which boost coverage levels to 5.0x.

The notes are general obligations of the county, payable from any and all county revenue sources not otherwise legally committed. The notes are being issued in anticipation of sales tax revenue to be received in 2008, and at 35% of projected 2008 revenues, represent the county's largest revenue source. Cash flow projections are conservatively based on the prior two year history of actual receipts. The county treasurer will set aside the last of the sales tax revenues collected to pay the notes, but no legal set aside is required by the documents.

Note proceeds represent 7.1% of expected available 2007 receipts in the county's five major operating funds, which include the general, police headquarters, police district, fire, and debt service funds. The county has historically issued only one cash flow borrowing per year, but due to increased sales tax set asides to fund debt issued by the Nassau County Interim Finance Authority the county anticipates following a schedule of two note borrowings per year going forward, including a RAN issuance in the summer and a TAN issuance near the close of the year. The amount of note issuance is expected to increase to about $200 million per year in coming years. The county expects a $100 million TAN issuance near the end of 2007, resulting in total note issuance for the year of $175 million.

The 'A+' rating on the county's outstanding GO bonds reflects significant improvement in the county's financial condition since its fiscal crisis experienced at the beginning of the decade, resulting from strong financial management practices successfully implemented in a short period as well as a broad and wealthy economic base; continued progress towards institutionalization of conservative fiscal policies; and moderate debt levels with above-average amortization rates. Other inherent credit strengths include a diverse tax base and high income levels. The rating also incorporates key credit concerns, including a high fixed-cost burden, borne by all counties in the state, and financial exposure related to the NHCC.

The Rating Outlook remains Positive, with improvement in the rating to depend upon progress made during 2007 in achieving cost saving measures needed to close gaps in the 2007 budget and 2007-2010 MYP. In addition, a demonstrated commitment to limiting the use of one time revenues and achieving sustainable structural balance beyond 2007 will have a positive impact on the rating.

Fitch believes that the county's 2007 budget and 2007-2010 multi-year financial plan (MYP) are less conservative than in past years, exhibiting continued reliance on one time revenues coupled with speculative cost saving measures, mainly related to labor concessions, and the assumption that recurring revenues will be raised through property tax increases in the out years of the MYP. Fitch notes that the county has made some progress in achieving labor concessions, but the savings achieved to date are below the amount assumed in the 2007 budget and out years of the MYP. Offsetting risk related to below budget savings are adequate contingency funds.

The strength of the county's economic base is one of the key strengths supporting the county's GO debt rating. Unemployment rates have consistently been below those of the state and nation, and registered a low 3.4% in May 2007. Wealth levels are well above average; in 2005 per capital income equaled 132% and 149% of the state and national levels, respectively. 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 4.4% of market value. The county's 2007-2011 capital improvement plan totals $771 million, to be funded mostly through county debt issuance. Debt is amortized rapidly with 76% of principal retired within ten years.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.