Fitch Rates Suffolk County, New York's 2009C Rfdg GOs 'AA-'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating to Suffolk County, New York's (the county) $15.5 million refunding serial bonds, 2009 series (the bonds). The bonds are expected to sell via competitive sale on Aug. 13 , 2009. The bonds are general obligations (GOs) of the county, payable from an unlimited ad valorem tax pledge. Fitch has also affirmed the 'AA-' rating on the county's approximately $959.3 million outstanding GO bonds. The Rating Outlook is Stable.

The 'AA-' rating reflects the county's broad and diverse economic base which continues to expand, low debt levels with manageable future capital needs, and its strong financial management and sound budgetary practices which have enabled the county to successfully contain expenditure growth and accumulate reserves. Credit concerns include the county's ability to maintain budgetary balance given declining sales tax and property tax revenues with the ongoing pressure from a high fixed-cost burden in light of the current economy.

The county has prudently accumulated reserves across several governmental funds to mitigate this condition, but Fitch notes that the county completed a planned drawdown of a portion of those reserves in fiscal 2009. The county has experienced a significant decline in revenues primarily attributable to an 11% decline in sales tax receipts to date. Fitch regards the county's strong reserves as a key component of the current rating and believes the county's ability to rebuild those reserves to historical high levels is limited at this time.

Encompassing the eastern two-thirds of Long Island, Suffolk County's population grew 6% since the 2000 census to an estimated 1.512 million in 2008. The county's economy benefits from its proximity to the New York City metropolitan area as well as its own broad employment base that includes higher education and health care, defense, retail, and technology, with numerous corporate and regional headquarters located in the county. Despite the overall economic downturn, the county continues to benefit from several large new development projects as well as a strong tourism sector. The county's unemployment rate rose from a low level of 4.7% in June 2008 to 7.5 % for the same period in 2009 but remains below the state and national levels of 8.6% and 9.7%, respectively. Per capita income levels are above those of the state and considerably above the national average in 2006, at 117% and 130%, respectively.

Despite a small decline of 1.6% of full valuation in fiscal 2009, the county's large and diverse tax base has grown significantly since the beginning of the decade. While market value in the county remains high at $204,180 per capita, the county experienced a 47% increase in the number of foreclosures in the first six months of 2009 compared to the same period in 2008. The county reports that the increase is in part attributable to the expiration of a temporary ban on foreclosures by the state. The ongoing pressures on the county's housing market has reduced projected property tax collections to 94% for 2009, down from prior year collections of 98%.

Audited results for fiscal 2008 produced a net deficit of $98.5 million on a gap basis which resulted in an unreserved fund balance of $29.3 million or 1.3% of total expenditures and transfers out, down significantly from fiscal 2007 levels. When added to the county's balance of $127.3 million in the tax stabilization reserve fund (TSRF), the unreserved fund balance equals a stronger 7% of total expenditures and transfers out. The county had a net deficit in fiscal 2007 of $47.7 million which resulted in an unreserved general fund balance of $121.6 million and when added to the county's $123.4 million TSRF, brought the unreserved fund balance to a favorable 11.2% of total expenditures and transfers out.

In first half-2009, sales tax revenues and property tax receipts, two of the county's largest revenues sources, have declined significantly. After closing an initial gap of $130 million for fiscal year 2009 thru the enactment of a county mitigation plan, the county continues to implement additional measures to close the approximately $100 million additional gap. Measures include the successful negotiation of labor concessions, the use of $30 million from reserves, the installation of red light cameras, a hiring freeze, the elimination of vacant positions, an Early Retirement Incentive program, an increase of mortgage recording fees as allowed by the state, and other cost saving measures.

Additionally, the county will receive approximately $44.2 million of its expected $90 million in federal stimulus monies in 2009. In 2008, the county securitized a portion of its tobacco settlement receipts received under the Master Settlement Agreement through the Suffolk Tobacco Asset Securitization Corporation, using the proceeds to defease approximately $180 million in outstanding GO bonds of the county over the next five years. Also in 2008, the county successfully closed on the sale of its HMO, generating $18 million of revenue in its 2008 budget as well as additional future annual revenues of $3.5 million for the life of the contract.

The county's sales tax revenue in fiscal 2008 declined by $36 million from revised budget forecast and is projected to decline by $100 million in fiscal 2009 compared to the 2009 adopted budget. The county reports that as of mid-July, sales tax receipts declined almost 11% compared to the same period in fiscal 2008. For fiscal 2009, the county had initially projected a decline in sales tax receipts of 5% from fiscal 2008 and now projects a decline of 6%. Fitch believes that the county nevertheless remains vulnerable to continued declines in sales tax receipts in 2009.

Debt ratios are low and should remain so given the county's growing tax base, manageable capital needs, and rapid principal amortization. Overall net debt is $2,929 per capita and 1.43% of market value. The county's three-year capital improvement program (CIP) 2010-2012 totals $589 million. The county has completed its actuarial study to determine its long-term liability for other post employment benefits (OPEB). The unfunded actuarial accrued liability is $4.3billion as of December 31, 2008, slightly higher from the 2007 reported amount. The 2008 audited financial statements show an ARC in the amount of $398.8 million. The county expects to fund its liability on a pay-go basis. Its net 2008 OPEB obligation is estimated at $296.58 million.

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.