Fitch Ratings assigns an 'AA-' rating to the following Ulster
County, NY (the county) public improvement refunding bonds:
--$62,855,000 public improvement refunding bonds, 2012.
In addition, Fitch affirms its 'AA-' rating on approximately
$64.9 million outstanding unlimited tax general obligation (ULTGO)
bonds.
The Rating Outlook is Stable.
The bonds are expected to sell via negotiated sale on or about
April 10, 2012.
SECURITY
The bonds are general obligations of the county secured by the
county's full faith and credit and unlimited taxing power, subject
to a 2011 state statute limiting property tax increases to the
lesser of 2% or an inflation factor. This limit can be overridden
by a 60% vote of the county board.
KEY RATING DRIVERS
STABLE FINANCES WITH CHALLENGES: The county's financial profile
is sound with healthy reserve levels. Fitch believes, long-term
budget stability will be challenging given increases in state
mandated expenses and employee pension and health care costs, and
contingent liabilities related to solid waste and the county-owned
nursing home. Fitch would view favorable the execution of the
county's current plan for the nursing home facility as it would
significantly decrease the county's future liabilities.
PRO-ACTIVE MANAGEMENT OF EXPENSES: Management has been
pro-active and successful in achieving operating efficiencies
through conservative budget practices, consolidation of county
operations, shared services, and reductions in work force.
FAVORABLE ECONOMIC PROFILE: The county benefits from its close
proximity to New York City and Albany, a growing population, below
average unemployment, and a stable economic base centered on
tourism, the State University of New York (SUNY) New Paltz and
agriculture.
MANAGEABLE LONG-TERM LIABILITIES: The county's overall debt
burden is low and is expected to remain stable due to limited
capital plans and average debt amortization. Pension and other
post-employment benefits (OPEB) are manageable.
TAX LEVY LIMIT: The bonds are rated on parity with outstanding
ULTGO debt because the county may exceed the tax cap in any one
year with 60% approval of the governing board and the tax cap
legislation does not exempt outstanding ULTGO debt service.
CREDIT PROFILE
DIVERSIFIED ECONOMIC BASE
Ulster County is located in the east central portion of the
state in the Catskill region, approximately 90 miles from New York
City and Albany. Given the easy access from New York City, the
county has developed a strong tourism sector. The county is home to
Woodstock, a large art and cultural center, and the Catskill and
Shawangunk Mountains which provide recreational activities year
around. Tourism grew by 13% in 2011, as evidenced by higher hotel
tax and sales tax revenue. The agriculture sector remains strong as
the county is the state's largest producer of fresh market apples
and sweet corn. In addition, horse breeding has become a major
industry with over 50 horse facilities, 10 of which are used for
breeding race horses.
The State Correctional Facilities and the SUNY New Paltz, with
8000 students, provide stability to the economy. The county's
unemployment rate at 7.8% in December 2011 remains below state (8%)
and national (8.3%) averages. County income levels are comparable
to those of the state and nation.
SALES AND PROPERTY TAXES PERFORMING WELL
Sales tax is the major source of general fund revenue,
comprising 35% in 2010. In 2009, sales tax revenues declined by 8%
due to recessionary pressures but rebounded in 2010, coming in 4.1%
above budget.
Property taxes provide the second largest general fund revenue
source at 23%. The property tax base is diverse and the top 10
taxpayers comprise 12.5% of taxable value. The tax base has been
fairly steady over the last few years and benefits from a
relatively stable housing sector. Although, housing prices remain
below the previous highs, the county did not experience the extreme
price fluctuations over the last several years seen in other parts
of the nation.
PRO-ACTIVE MANAGEMENT OF EXPENES PRODUCES STABLE FINANCIAL
OPERATIONS
With the exception of a small operating deficit after transfers
in 2009, the county has achieved general fund operating surpluses
after transfers in every year since 2006. In 2009, sales tax
revenues declined by 8% due to recessionary pressures. To offset
the decline, management implemented expenditure reductions by
cutting approximately 100 positions resulting in a $4 million
savings. In 2010, sales tax rebounded, totaling 4.1% above budget.
Reserve levels are healthy with an unreserved general fund balance
equal to 9.9% of spending at Dec. 31, 2010.
Positive financial results continued in 2011, driven primarily
by strong sales tax growth with better than budget results,
increasing by 3.3% or $2.8 million above budget. In addition, hotel
taxes hit the $1 million mark (just 0.4% of general fund revenue)
for the first time since 2008 due to strong growth in the tourism
sector. On an unaudited basis, the county will only use
approximately $4 million of the budgeted $12 million of
appropriations from the general fund. Management continued to
pro-actively reduce expenditures via the elimination of 75
positions, implementation of a self-insurance plan for health
benefits, the sale of the certified home health agency, and
restructuring the Department of Public Works.
CONSERVATIVE 2012 BUDGET ASSUMPTIONS
For fiscal 2012, management continues to budget conservatively
and streamline operations verses increasing taxes. The $295 million
general fund budget grew 3.5% over 2011. The 2012 budget is
balanced and relies on $10.8 million in appropriations from the
general fund. If completely used, the general fund balance would
decrease to approximately $28 million, or a still adequate 10.2% of
2010 expenditures. Sales tax revenues are conservatively projected
to increase by 2% from 2011 estimated receipts; as of Feb. 15,
2012, sales tax collections were 2.8% ahead of budget. Fitch
believes these assumptions are conservative given the county's past
results. Management will absorb higher fixed costs in fiscal 2012
through operational efficiencies via the elimination of 23
positions and the restructuring of Mental Health Services which
combined will save approximately $2.5 million.
INCREASING FIXED COSTS MAY CHALLENGE OPERATIONS
Like many New York counties, Ulster's long-term budget stability
will be challenging given increases in state mandated expenses and
employee pension and health care costs. The county participates in
the New York State and Local Employees Retirement System (ERS) a
cost-sharing multiple-employer defined benefit pension plan. The
county contributes the full amount of its required contribution
annually, equal to approximately 4% of spending for fiscal 2010.
Payments have increased substantially over the last few years and
are budgeted for $16.8 million in 2012, a 24% increase from the
2011 payment and up to approximately 6.3% of spending. The county
currently funds its OPEB liability on a pay-go basis. As of Dec.
31, 2010, the county's OPEB liability totalled $140 million or a
modest 0.7% of market value.
Fitch also notes additional financial pressure from contingent
liabilities related to the Golden Hill Health Care Center, the
county-owned nursing home and the county's Resource Recovery Agency
(the agency). The nursing home facility operates at a deficit,
receiving subsidies from the county which totalled $1.1 million in
2010 and are estimated at $3.3 million for 2011. In 2011, the
county legislature approved a plan for the restructuring of the
nursing home. The first phase involves the creation of a Local
Development Corporation (LDC) which would allow for specific
bonding and a lease back to the county for operational purposes.
Phase two involves the LDC identifying a borrower and the sale of
the facility. The county included $5.6 million in its 2012 budget
(2.1% of spending) and is planning for another increase for fiscal
2013, at the end of which the county hopes to complete a sale.
Fitch would view favorable the successful implementation of this
plan as it would limit what would likely be a growing contingent
liability over time.
Fitch is less concerned about the county's exposure to the
resource recovery facility as legislature oversight enables the
county to manage costs as opposed to rapidly growing health care
expenditures. Under an agreement, the county is liable for an
annual service fee payable to the agency which amounted to $1.4
million in 2010 and 2011.
LOW DEBT PROFILE
The county's credit profile benefits from low overall debt and
modest future borrowing. Overall debt is manageable at $1,543 per
capita and 1.4% of market value. Debt service in 2010 comprised a
modest 4.3% of combined general and debt service fund expenditures.
Direct debt includes bonds issued by the county to fund capital
expenditures of the Ulster County Community College as well as the
outstanding debt of the Ulster County Resource Recovery Agency, for
which the county is obligated to fund operating deficits through
payment of an annual service fee.
Fitch expects debt levels to remain stable given average
amortization and modest future capital plans. The fiscal 2012-2017
capital improvement plan (CIP) anticipates $69 million of
expenditures, focused on transportation, public health and
education, the majority to be funded by state and federal
contributions.
The series 2012 bonds are being issued to refund all or a
portion of the $21,475,000 outstanding principal balance of the
Series 2005A Bonds and to refund all or a portion of the
$40,965,000 outstanding principal balance of the series 2006 bonds.
The county expects to realize a savings of approximately $2.5
million on a level basis with no extension of maturities.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer,
and therefore, Fitch has been compensated for the provision of the
ratings.
In addition to the sources of information identified in the
Tax-Supported Rating Criteria, this action was additionally
informed by information from Creditscope, University Financial
Associates, S&P/Case-Shiller Home Price Index, IHS Global
Insight, Zillow.com and, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug.
15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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