Fitch Rates Onondaga County, New York's GOs 'AA+'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an 'AA+' rating to Onondaga County, NY's (the county) $28,000,000 general obligation (serial) bonds, 2005 series A. In addition, Fitch affirms the 'AA+' rating on the county's $274.6 million of outstanding general obligation bonds. The current offering is scheduled to sell competitively on Aug. 9. Bond proceeds will finance various capital projects, including highway projects and Onondaga Community College improvements. The Rating Outlook is Stable.

The 'AA+' is based on Onondaga County's sound financial position, low direct debt burden, following the use of tobacco securitization proceeds, along with a diversifying economy as the growth in the high technology, services, and government sectors appears to have outpaced the decline in manufacturing jobs. Favorable credit factors also include solid management practices reflected in conservative budgeting and well conceived formal fund balance and debt affordability policies. Such practices have been pivotal given the escalating pension, social service, and employee benefit costs; similar to most counties in the state. Although such budgetary pressures contributed to fund balance drawdowns in recent years, the additional 1% sales tax effective since September 2004 along with the new cap on local Medicaid spending is expected to provide structural balance. As a result, management plans to gradually replenish fund balance reserves and meet its 10% policy within three years.

Onondaga County is a diverse economic center of upstate and central New York. The 2000 census reported a 2.3% population decline since 1990, a trend that may be moderating, given estimated increases in the past four years. Despite the transfer of Carrier Corp.'s manufacturing operation from the area, employment remains stable mostly due to small and midsize companies focusing on business services, telecommunications, and high technology research. The $44 million Center for Excellence in Environmental and Energy Systems and the first phase of the new $80 million biotechnology research center resultant from a collaborative effort between State University of New York (SUNY) Upstate Medical University, College of Environmental Science and Forestry, and Syracuse University, are both expected to break ground in 2006 and to further strengthen the county's knowledge-based economy. Employment in the areas of wholesale and retail trade is also anticipated to benefit from the planned expansion of the existing regional mall into a multipurpose venue to be named DestiNY USA. Income levels have shown improvements and, along with unemployment levels, are approximately on par with state and national averages.

Following several years of fund balance drawdowns and dependence on one-time revenue sources, fiscal 2005 year-end projections show an operating surplus of $5.5 million, due mostly to the stronger sales tax collections. As a result, the county's projected fund balance of $57.5 million or 9.7% of revenues is closer to its 10% policy after falling below the target in 2004. The new statewide local Medicaid cap, limiting spending growth to a 3.0%-3.5% range in the next four years, is also expected to provide budgetary stability and structural balance as management focuses on replenishing fund balance reserves to historical levels.

Conversely, the county's Van Duyn nursing home financial operation remains distressed and is projected to have fully depleted its reserves by 2006 due to reduced federal and state aid and increased pension costs. Alternative measures to stabilize financial operations are under review and execution of a plan is expected by mid September 2005. Upon implementation, the county's annual subsidy is anticipated to be a manageable $4 million-$7 million going forward, slightly above the $3 million forecasted in 2006.

Overall debt ratios are low at $1,151 per capita and 2.47% of fair market value. Debt service relative to the 2005 budget also remains low at 5.4% of general fund revenues. The county's approximate $275 million outstanding GO debt is offset partly by the $67.6 million of tobacco settlement securitization proceeds. Borrowing needs remain manageable given the current financing arrangements for the court-ordered Onondaga Lake cleanup. Lake remediation projects, nearly halfway complete, are proceeding in a timely manner and currently under budget, although a risk remains of the cleanup plan changing if discharge limits are not achieved. The five-year capital improvement plan (CIP) totals $507 million, about 53% of which will come from county borrowing. Amortization is above average at 70% in 10 years.

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