Fitch Rates Onondaga County, NY's GOs 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AAA' rating to the following Onondaga County, NY (the county) bonds:

--$79,900,000 general obligation (GO) serial bonds, 2015;

--$11,320,000 GO refunding serial bonds, 2015.

The new money bonds are scheduled for competitive sale on May 14 followed by the refunding bonds on June 3.

Proceeds will be used to fund various capital improvements in the county as well as refinance outstanding debt for savings.

In addition, Fitch affirms the following ratings:

--Approximately $321.9 million GO bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds 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

FAVORABLE ECONOMIC PROFILE: The county benefits from a stable tax base and a diverse economy with strong education and health care sectors. County unemployment rates are consistently below both state and national levels.

WELL-MANAGED FINANCIAL OPERATIONS: Prudent fiscal policies and budgetary conservatism have resulted in solid financial performance highlighted by consistent reserves above the county's policy level of 10% of revenues.

MANAGEABLE LONG-TERM LIABILITIES: The debt profile is characterized by a moderate overall debt burden, modest carrying costs, rapid amortization, manageable capital plans, and well-funded state pension plans.

RATING SENSITIVITIES

STRONG FISCAL MANAGEMENT: The rating is sensitive to shifts in fundamental credit characteristics including strong financial management practices which underscore the county's solid financial profile. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

Onondaga County is located in the center of New York approximately midway between Albany and Buffalo. The city of Syracuse (GOs rated 'A'; Outlook Stable by Fitch) serves as the county seat and the economic center for the region. The county's population has been fairly stable. The 2014 estimated population of 468,196 was less than a 1% increase from 2010. Population increased a modest 1.9% from 2000 to 2010.

FAVORABLE ECONOMIC PROFILE

The county benefits from a stable employment base bolstered by a strong presence of health care and higher education. Major employers include the State University of New York (SUNY) Upstate Medical University Center with approximately 9,300 employees and Syracuse University with almost 4,700 employees and a student enrollment of approximately 21,200.

The county's unemployment rate has consistently been below state and national levels. The county's unemployment rate declined to 5.6% in February 2015, from 6.6% year prior, driven by employment gains outpacing modest growth in the labor force.

The county's real estate market weathered the national housing downturn well with minimal foreclosures and declines in home prices. Assessed valuation continues to grow modestly with a 5.5% increase since 2012. The tax base is diverse with the top 10 taxpayers comprising a modest 5.4% of assessed value. Typical of the upstate New York region, the county's median household income level is below the state at 93%, but slightly above the national average at 102%.

WELL-MANAGED, CONSISTENT RESERVE LEVELS

For 2014 (year-end Dec. 31), general fund operations outperformed budget as a $14.3 million appropriation of fund balance was reduced to $9.2 million. The county experienced better than expected property tax collections and mandated costs grew at a lower rate than expected. The county ended 2014 with an unrestricted general fund balance of $80.4 million, or a healthy 11.1% of general fund spending. Fitch views positively the consistent maintenance of healthy general fund unassigned balances above the county's policy (10% of revenues). Since 1999, the county's fund balance has exceeded this policy in every year except 2004; in 2014 it totaled 11.7%.

Sales tax is the largest source of general fund revenue comprising 48% in 2014. The county's finances have benefitted from the implementation of a 10-year sales tax sharing agreement effective Jan. 1, 2011. The agreement increased the county's retained percent of sales tax receipts from 45% to 75% after full implementation in 2013. The county's retained share of sales tax revenue totaled $252 million in 2014, a $7 million increase over 2013. Total property tax collections, which represent 21% of general fund revenues, outperformed the 2014 budget by $2.8 million. Property tax collections are healthy, averaging 97% over the last three years.

Fitch views positively the November 2013 sale of the county-owned nursing home (Van Duyn Home and Hospital) as it significantly reduces the county's future liabilities. The nursing home operated at a deficit, receiving subsidies from the county general fund ($4.2 million in 2012). The county will continue to have legacy costs (approximately $5 million to $7 million annually) for debt service, retiree health and existing worker's compensation claims filed before the sale.

MODEST USE OF FUND BALANCE BUDGETED IN 2015

The 2015 adopted budget totals $1.2 billion in total expenditures, basically unchanged from the 2014 budget. The general fund budget includes $3.8 million use of fund balance as well as no increase in the property tax levy.

Management's current projections show an $8.3 million surplus. Contributing to the surplus is projected savings in mandated costs due to the state's cap on Medicaid expenses and savings related to the affordable care act which should lower Medicaid costs by about 4% in 2015. Management reports that gross sales tax receipts to date are 3% over actual collections for the same period in 2013. Given management's conservative budget practices and strong financial oversight, Fitch expects the county to maintain a positive financial profile and reserves within its stated policy; 11.1% is budgeted for in 2015.

MANAGEABLE DEBT PROFILE

The county's debt levels are manageable. Overall debt is moderate at $2,842 per capita and 4.9% of full value. Amortization is very rapid, with 84% retired in 10 years.

The county's six year (2015-2020) capital improvement plan (CIP) outlines $199 million in proposed general fund projects to be funded with debt which Fitch views as manageable.

WELL-FUNDED STATE PENSION PLAN

Substantially all employees of the county are members of the well-funded New York State and Local Employees' Retirement System (ERS) pension plan. At March 31, 2014, ERS had a funded ratio of 100%. Using Fitch's more conservative 7% discount rate assumption, the plans' funding level is still sound at an estimated 84%. The county contributes the full amount of its required contribution annually, equal to 3.9% of government fund spending in 2014. The county has not participated in the pension-smoothing option provided by the state, which Fitch views positively.

The county currently funds its other post-employment benefit (OPEB) liability on a pay-as-you-go basis and will continue to do so as there is no authority under present state law to establish a trust account or reserve fund for this liability. As of Dec. 31, 2014, the county's OPEB liability totaled a sizable $738 million, or what Fitch considers a high 2.7% of market value. Positively, the OPEB liability is a decrease from $973.2 million a year prior as a result of county changes to retiree medical plans. Since August 2013, Medicare eligible retirees and dependents are placed in a Medicare Advantage Plan thereby removing them from the county's self-insured plan and saving an estimated $3.5 million a year. Total carrying costs, inclusive of debt serve, pension and OPEB costs, equaled a modest 13.9% of total government fund spending in 2014.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from CreditScope, University Financial Associates, CoreLogic Case-Shiller Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984286

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Contacts

Fitch Ratings
Primary Analyst:
Karen Wagner, +1-212-908-0230
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst:
Eric Friedman, +1-212-908-9181
Director
or
Committee Chairperson:
Karen Krop, +1-212-908-0661
Senior Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Karen Wagner, +1-212-908-0230
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst:
Eric Friedman, +1-212-908-9181
Director
or
Committee Chairperson:
Karen Krop, +1-212-908-0661
Senior Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com