Fitch Rates Syracuse, New York Public Improvement Bonds 2007A 'A' & 2007B 'BBB'; Outlook To Stable.

NEW YORK -- Fitch Ratings assigns an enhanced 'A' rating to the city of Syracuse, New York's (the city) approximately $9.5 million general obligation (GO) public improvement (serial) bonds, series 2007A (city school district purpose). Fitch also assigns an underlying 'BBB' rating to the city's $9.8 million GO public improvement (serial) bonds, series 2007B. The bonds are scheduled to price competitively on May 29. Additionally, Fitch affirms the underlying 'BBB' rating on approximately $247.3 million outstanding GO debt. The Rating Outlook has been revised to Stable from Negative.

The underlying 'BBB' rating reflects the city's high debt burden, relatively stagnant taxable base, and below-average economic indicators. The Outlook revision to Stable from Negative reflects the city's stronger than budgeted recent financial results and a notable reduction compared to prior years in budgetary gaps outlined in the city's updated four-year financial plan. While the city's above-average reliance on state-aid, limited financial flexibility, and continued structural imbalance at the school district remain a concern, Fitch believes these risks are somewhat mitigated by historically strong financial management practices and a solid level of general fund reserves.

The 'A' rating on the city's school purpose bonds is based on Fitch's 'A' rating of the New York School Credit Enhancement Program, enshrined in section 99b of the state finance law. The law requires the state comptroller to cure certain defaults on local debt issued for school purposes by withholding subsequent state aid payments otherwise due a school district.

Located within Onondaga County (GOs rated 'AA+' by Fitch), Syracuse serves as a diverse economic center of upstate and central New York. The 2000 U.S. Census reports a population decline of 14% since 1990, although the losses appear to have slowed since then, as evidenced by slight gains in the labor force in recent years. Much of the job growth is coming from small and midsize companies focusing on business services, telecommunications, and high technology research. Employment is centered in the higher education, health care, and business service sectors, anchored by the presence of Syracuse University and the State University of New York Health Science Center. The city's unemployment rate - measured at 5.0% in March 2007 - has declined steadily since its recent peak in 2004, though it still exceeds the state and national average. Personal income levels remain below state and national averages, while per capita retail sales comfortably exceed them. The city's tax base has been relatively stagnant since 2000, though assessed value has increased by a slight 1% annually in the two most recent years.

Fiscal 2006 results exceeded budgeted expectations, yielding a $1.0 million operating surplus, achieved primarily by favorable variances in sales tax receipts, investment income and expenditures related to salaries and pension. The city's unreserved, undesignated general fund balance at the close of fiscal 2006 totaled $21 million, equal to a solid 11.1% of spending and transfers and comfortably above the city's informal target of 5%. Fiscal 2007 projections show a $7.5 million operating surplus attributable largely to an $11.1 million contribution from the Syracuse Industrial Development Agency (SIDA) and $5.7 million reduction in budgeted expenditures. A projected, overall increase in state-aid, which management expects will be recurring, coupled with expected annual contributions from SIDA have significantly reduced large budgetary gaps outlined in prior years in the city's updated four-year financial plan. The school district's financial position remains tenuous following a $1.6 million operating deficit in fiscal 2006 and a projected $2.5 million draw on fund balance expected in fiscal 2007.

Overall debt ratios are moderate at $2,383 per capita and a high 8.9% of full property valuation, reflecting the weak tax base. The combined city and school district five-year capital improvement plan (CIP) has nearly doubled to $801 million in recent years reflecting the inclusion of the school district's multi-year comprehensive facilities improvement program which will likely receive state support of 93%.

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