Fitch Rates Suffolk County, NY's $45MM RANs and $19MM BANs 'F1'; GO Bonds 'A'.
--$45 million revenue anticipation notes (RANs) for 2016 taxes;
--$18.9 billion bond anticipation notes (BANs) - 2016 series A.
Fitch assigns an 'A' rating to the following bonds:
--$85 million refunding serial bonds-2016 series A.
In addition, Fitch affirms the 'A' rating on the following:
--Approximately $1.5 billion of outstanding general obligation (GO) bonds.
The notes and bonds are expected to be sold through competition on March 30, 2016.
The RANs are being issued to provide cash flow in anticipation of collection of certain revenues for the county's 2016 fiscal year.
The BANs will redeem the $27.7 million 2015 series A BANs maturing April 29, 2016. The BANs were originally issued in 2013 to finance the cost of an arbitration award in favor of the Suffolk County Corrections Officers Association.
The bonds will refund portions of outstanding county public improvement bonds for savings taken throughout the life of the bonds.
The Rating Outlook is Stable.
The bonds and notes are general obligations of the county with a pledge of its faith and credit and ad valorem tax, subject to the 2011 state statute limiting property tax increases to the lesser of 2% or an inflation factor (the tax-cap law). This limit can be overridden annually by a 60% vote of the county legislature.
KEY RATING DRIVERS
SATISFACTORY MARKET ACCESS: The 'F1' short-term ratings for both the RANs and BANs is mapped to the county's long-term 'A' underlying rating, reflecting expected market access. RAN coverage is adequate.
CHALLENGED FINANCIAL PROFILE: The county's financial profile will continue to be challenged by a large negative general fund reserve position (GAAP basis) due in part to persistent operating deficits and revenue volatility caused by a high dependence on economically sensitive sales tax receipts.
DECLINE IN CASH-FLOW BORROWING: Reflecting some improvement in liquidity, short-term borrowing has decreased over the past few years. Despite the lower borrowings, Fitch expects the county to be reliant on cash-flow borrowing for the next several years.
STRONG ECONOMIC FUNDAMENTALS: The county benefits from a broad and wealthy economy and tax base characterized by below-average unemployment rates and high wealth levels.
MANAGEABLE LONG-TERM LIABILITIES: The sizable and wealthy tax base supports a manageable debt burden with above-average amortization. Capital needs are moderate and state pension plans are well-funded.
FINANCIAL PERFORMANCE: The 'A' long-term rating and Stable Outlook reflect Fitch's expectation that despite significant expenditure reductions over the last several years combined with increased recurring revenues and reduced reliance on one-shots, the county's GAAP operations and reserves will continue to be weak. A trend of surplus operations, elimination of non-recurring revenues to balance the budget, and an increase in reserves could result in improved ratings.
Suffolk is among the wealthiest counties in the state and nation, benefiting from its proximity to New York City and a well-educated work force. The county encompasses the eastern two-thirds of Long Island including the Hamptons and Fire Island. The county's population of approximately 1.5 million is the largest of any county in the state outside of New York City. Between 2000 and 2010, county population increased by a total of 5.2%. The total growth rate from 2010 to 2014 was a modest 0.5% and a slow rate of growth is expected to continue into at least the near future.
NARROW NOTE REPAYMENT COVERAGE, DECLINING CASH-FLOW BORROWINGS
Cash flow is projected to provide narrow coverage of 1.2x on the current RAN issue at maturity in March 24, 2017. Fitch believes the county's cash flow projections are reasonable; historically, actual coverage for repayments for the most part has been better than projections.
Fitch views as a positive credit consideration the decline in cash-flow borrowing and continued strong market access, but expects the county's reliance on cash-flow borrowings to continue for the next several years.
2015 EXPECTED SHORTFALL
The 2015 budget contained the third consecutive police district property tax increase and aggressively budgeted sales tax growth of 4.87%. Preliminary fiscal 2015 results indicate that sales tax revenue collections were 5% under budget in part due to aggressively budgeted growth assumptions and the decline in gas and energy prices. The county budgeted $10 million in one-time revenue from the sale of property in fiscal 2015; however, the sale is not expected to be finalized until the end of fiscal 2016. The county believes that the revenue shortfalls were offset by $5.7 million in unbudgeted property tax collections and expenditure savings including payroll and health care savings. The county is projecting a combined general fund and police district operating deficit of $28.5 million or 1% of combined expenses. The general fund balance is expected to remain negative at approximately -$227 million on a GAAP basis.
Although less reliant on one-off transactions than in the past, the adopted 2015 budget included a state-authorized $59.8 million pension deferral, and the use of $22.5 million from the Assessment Stabilization Reserve Fund (ASRF). The pension deferral amount is a decrease from previous years and about $20 million less than the county is permitted to amortize.
The county has taken advantage of the ability granted by the state to amortize most of the increase in annual pension payments for 2012 and 2013 over 10 years. Commencing with the 2014 pension payment, the county utilized the state's Alternate Contribution Stabilization Program which allows for amortization over 12 years. The county amortized portions of its annual pension costs for 2014 through 2016 under the alternate program. This amortization option provided some near-term budget relief. Fitch expects future pension payments to remain manageable.
A referendum was approved on the November 2014 ballot which authorized the county to borrow from the ASRF through 2017 to provide tax relief. All amounts borrowed from the ASRF will be repaid by 2029, with payments commencing in 2018.
The ASRF provides funding to the county's sewer funds for stabilization of sewer rates and fees in addition to infrastructure and capital improvements within the sewer districts. Funds from 0.25% of the county's sales tax revenues are deposited in the county water protection fund with 25% transferred to the ASRF. At the end of fiscal 2014, the ASRF ending fund balance was $130 million.
2016 ADOPTED OPERATING BUDGET
The $3.4 billion (total operating expenditures and other financing uses) 2016 budget represents an increase in spending of 1.75% and revenues of 2.55% from the 2015 budget. The 2016 budget projects sales tax growth of 3.55% over the 2015 estimated results. Fitch believes given the recent weak performance of sales tax, the projection for 2016 is still somewhat aggressive.
Initiatives that balance the 2016 budget include increases in recurring revenues and expenditure savings but the budget still relies on a number of non-recurring revenue items. As in 2015, the largest measures are the amortization of the 2016 pension payment totaling $45 million and a $28.2 million loan from the ASRF. The budget also includes $14.4 million for disputed payments related to the master tobacco settlement agreement, which will not be finalized until April after the state's fiscal year-end. Additionally, $5 million from the sale of county-owned vacant land parcels is incorporated in the budget.
For the fourth consecutive year, the budget includes a police district property tax increase (2.9%) which will generate about $14.6 million. New recurring revenues total about $49.7 million and include increased fees on motor vehicle registrations ($14.8 million), a tax-map verification fee ($24.7 million), new fees and fines for the False Alarm Registration Program ($7.2 million) and $3 million in various parks, health department consumer affairs and public work fees and fines.
The county has made some progress in its goal toward structural budgetary balance with recurring revenues and cost reductions. Headcount has been reduced by about 1,189 positions since 2012, all county health centers will have been converted to federally qualified centers, the county nursing home facility has been closed, and union contracts have been settled with health care cost savings to the county. However, rating stability will depend on continued reduced reliance on non-recurring measures and movement towards the accumulation of reserves while economic conditions remain stable to improving.
The county issues short-term RANs annually and tax anticipation notes (TANs) twice each year. Proceeds fund operations in anticipation of state and federal aid and delinquent and current property tax receipts. Note par has declined over the past few years. For 2016, total note issuance decreased to $555 million (16.3% of budgetary expenses) from $625 million fiscal 2013.
STRONG ECONOMIC FUNDAMENTALS
The county benefits from a broad, diverse economy and close proximity to New York City. Income levels are well above average with 2014 per capita income totaling 130% of the nation. Full market value at $271 billion is up about 6% from 2015 and market value per capita of $180,000 is strong. The county's unemployment rate remains lower than the rates for New York State and the nation. The December 2015 county unemployment rate was 4.2% compared to 4.7% and 4.8% for the state and nation, respectively. Year-over-year unemployment was down from 4.7% in December 2014, due to employment outpacing labor force growth.
MANAGEABLE LONG-TERM LIABILIITES
The county's debt ratios at $4,036 per capita and 2.2% of market value are in the moderate range, with the latter reflecting the wealthy tax base. Debt service represents a modest 4.0% of total governmental fund spending.
Debt ratios should remain stable given manageable capital needs and rapid amortization (76.8% of principal is retired within ten years).
The county participates in well-funded New York State pension plans. As of March 31, 2015, the state and local employees' plan and the state and local police and fire plan had funded ratios of 92% and 93%, respectively. Using Fitch's more conservative 7% discount rate assumption the plans' funding levels would still be sound at an estimated 87% and 88%. County pension payments in 2014 made up a moderate share (5.8%) of government fund spending.
The moderate pension liability is somewhat offset by a sizable unfunded actuarial accrued liability for other post-employment benefits (OPEB) of $5.1 billion as of Dec. 31, 2014, or 2.0% of market value. The county continues to fund its OPEB liability on a pay-as-you-go basis as there is no authority under present state law to establish a trust account or reserve fund for this liability. Carrying costs for debt service, pension and OPEB equaled a moderate 13.7% of 2014 total government fund spending, with the county's amortization of part of the pension payment somewhat offsetting rapid debt repayment.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Apr 4, 2016|
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