NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following town of Huntington, NY (the town) bonds:
--$12,990,000 general obligation (GO) public improvement serial bonds - 2015.
The bonds are expected to price the week of Nov. 30. Proceeds will fund various capital improvements.
In addition, Fitch affirms the following town debt at 'AAA':
--Approximately $95 million in outstanding GO bonds.
The Rating Outlook is Negative.
The 2012 and subsequent issues are general obligations of the town for which the town has pledged its full faith and credit and ad valorem tax, subject to a 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 town's governing body.
The town has pledged its full faith and credit and unlimited taxing power for debt service on outstanding GO bonds issued prior to 2012. No exemption is made under the tax cap law for debt service on outstanding GO debt; however, the constitutionality of this provision has not been tested.
KEY RATING DRIVERS
NEGATIVE OUTLOOK: The Negative Outlook reflects Fitch's concern regarding the town's recent financial performance, with significant deficits posted in 2013 and 2014. These deficits left the town's fund balance well below its policy level. If projected results for 2015 and 2016 are realized, demonstrating a commitment to maintaining adequate reserves, the Outlook may be revised to Stable.
PAY-AS-YOU-GO PROVIDES FLEXIBILITY: The town's practice of annually dedicating current funds to ongoing capital investment enhances overall financial flexibility and has helped to minimize the town's debt burden.
WEALTHY, ROBUST ECONOMY: The town benefits from its proximity to New York City and an affluent local economy characterized by above-average wealth levels and below-average unemployment.
MODERATE FIXED-COST BASE: The town's debt is low on a market value basis and amortizes very rapidly. Fixed costs are moderate and capital plans are reportedly limited.
FINANCIAL UNDERPERFORMANCE: The rating is sensitive to the town's commitment and ability to improve financial performance. A rating downgrade is likely if the town fails to restore structural balance and rebuild fund balances to at least policy levels, in the near term.
The town is located at the western end of Suffolk County, approximately 40 miles east of Manhattan on Long Island Sound. Population increased by 4% from 2000 to 2010 and has grown slightly since, totaling an estimated 204,673 in 2014.
FINANCIAL UNDERPERFORMANCE IN 2013 AND 2014
The town's financial performance has been uneven. There were two years of surpluses in 2011 and 2012. The town had two years of sizable deficits in 2013 and 2014, with a significant $10.5 million deficit (10.2% of spending) in 2013 and a $4.4 million deficit (4.6% of spending) in 2014. The unrestricted general fund balance at the end of 2014 totaled just 6.4% of spending compared to 16.7% in 2012. The deficit in 2013 was driven largely by one-time uses of fund balance for open space acquisition and park improvements, which Fitch views as a reasonable use of fund balance. The 2014 deficit was caused by the mortgage tax coming in $1 million under budget and delayed implementation of a new system for parking fines. Reserves are now below management's fund balance policy target of 10% of spending.
IMPROVED RESULTS PROJECTED
The 2015 adopted budget has an 8.4% tax increase in the general fund and a 2.9% overall levy increase, with no use of fund balance in the general fund. Management currently expects to finish the year with a surplus of approximately $450,000. An early retirement incentive generated about $600,000 of savings, with $1 million of savings projected for 2016. All major revenue sources are on budget. The town will also receive about $220,000 of FEMA reimbursement from Superstorm Sandy for its general fund, but management is unsure whether that will arrive in 2015 or 2016.
The 2016 budget is balanced with a 1.4% property tax increase. The general fund balance increased 0.6% to $98 million. The town was recently notified that its 2016 pension payment will be $2 million below the amount included in the budget, which should help the town to further restore reserves towards policy levels.
AFFLUENT ECONOMIC BASE
The town's economic base is broad and stable. Market value is substantial at $36.6 billion or $179,000 per capita. Utility, retail, and commercial firms stabilize the largest taxpayers, with some concentration in Keyspan/Long Island Power Authority (LIPA), representing 11% of the town's tax base. LIPA has appealed its valuation and discussions are ongoing. The county, not the town, would be liable for any retroactive payments if LIPA were to win its appeal, although a lower valuation would affect the town's tax base.
Any future tax base growth will be driven largely by redevelopment efforts as the town is largely built out. Canon USA's relocated headquarters have benefited the local economy, with an uptick in economic development activity reported around the headquarters. The company is reportedly planning to expand its new headquarters. There is also a fair amount of housing growth.
Assessed valuation (AV) held up well through the recent recession, with a manageable 3.4% decline since the 2008 peak. AV is down a marginal 0.4% in 2015. The additional benefits from Canon's headquarters, the recently completed expansion at Walt Whitman mall, and numerous other commercial and residential development projects underway and announced should bode well for AV growth going forward.
The town is affluent as evidenced by wealth and income levels that are considerably higher than state and national averages. Median household income is 184% of the state and 201% of the national average. Unemployment rates have historically been below state and national averages. The town's unemployment rate of 4% in August 2015 compares favorably with the county (4.7%), state (5%), and national averages (5.2%). Major employers include Huntington Hospital, Estee Lauder, Northport Veterans Affairs Medical Center, and Canon.
MODERATE LONG-TERM LIABILITIES
The town's overall debt levels are moderate at $3,348 per capita and 1.9% of market value. In addition, the town has a policy of rapid debt amortization; 93% of outstanding debt is retired in 10 years. The town dedicates a portion of current property taxes to ongoing road maintenance helping to maintain the town's low debt profile and giving the town additional financial flexibility.
The town reports limited capital needs because it is largely built out and its infrastructure is well-developed.
The town participates in New York State and Local Employees' Retirement System, a cost-sharing, multiple-employer defined benefit pension plan. As of March 31, 2015, the plan was well-funded at 92%. Using Fitch's more conservative 7% discount rate assumption the plan's funding level is sound at an estimated 87%.
The town's other post-employment benefit (OPEB) liability represents moderate near-term financial pressure, as pay-as-you-go funding represented 3% of 2014 governmental spending. As of Jan. 1, 2014, the unfunded actuarial liability represented a low 0.5% of market value. The town's carrying costs for debt, pension, and OPEB represented a moderate 16% of governmental spending.
Additional information is available at 'www.fitchratings.com'.
Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope, IHS Global Insight, and Zillow Group.
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
Dodd-Frank Rating Information Disclosure Form