Fitch Ratings assigns an 'A-' rating to the following Monroe
County, NY (the county) bonds:
--$57,005,000 general obligation (GO) refunding bonds, 2012.
Bond proceeds are expected to advance refund outstanding 2002
and 2003 series public improvement bonds. The bonds are expected to
price on or around March 20. The county plans to realize a savings
of 7% of the refunded par from the series 2012 advance refunding
bonds on a level basis with no extension of maturities.
In addition, Fitch affirms its 'A-' rating on approximately $377
million county GO bonds, various series.
The Rating Outlook is Stable.
SECURITY
The bonds are 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
legislature.
KEY RATING DRIVERS
UPSTATE ECONOMIC CENTER: The county is an upstate New York
economic center, with an economy that has experienced substantial
diversification away from its historically manufacturing-based
roots into health, higher education, and services.
CONSTRAINED FINANCIAL FLEXIBILITY: The county's finances remain
constrained by a high fixed-cost burden and characterized by a
continued reliance on one-time and intergovernmental revenues
sources as well as cash flow borrowing. Management's stated policy
to not raise the county's property tax rate, which has not changed
since 2008, restricts restoration of structural balance primarily
to expenditure reductions.
POSITIVE OPERATING TREND: Financial margins were positive for
the past two years and 2011 year end estimates suggest that this
trend will continue. The results were achieved with one-time
revenues and deferment of certain pension costs.
ADEQUATE MANAGERIAL PRACTICES: Management's financial planning
and review tools have helped contain discretionary cost growth and
achieve recent positive operations.
MANAGEABLE LONG-TERM LIABILITIES: The county's credit profile
benefits from a manageable debt burden and rapid amortization as
well as reasonable pension and other post-employment benefit (OPEB)
costs.
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 county legislature and the tax cap
legislation does not exempt outstanding ULTGO debt service
CREDIT PROFILE
UPSTATE NEW YORK ECONOMIC CENTER
Monroe County's status as one of upstate New York's key economic
centers and third largest population center in the state continues
to serve as a credit strength. The county's economy has diversified
away from its historically manufacturing-dominated economy and is
now home to a robust healthcare and higher education presence, with
the University of Rochester and its associated medical center as
the county's leading employer.
Other leading employers include Wegmans Food Markets, Xerox
Corporation, and Paychex, Inc., with each employing in excess of
3,500 people. Eastman Kodak Company, which in 2011 employed 7,100,
filed for Chapter 11 bankruptcy protection in January 2012, an
evolving situation which Fitch will monitor for economic and
financial effects on the county's credit quality. While Fitch
remains concerned about the long-term impact on the regional
economy, historic workforce contractions at Eastman Kodak have been
absorbed; Eastman Kodak employment totaled 62,000 in the 1980s.
Unemployment within the county continues to moderate, down
slightly to 7.1% in December 2011 from 7.5% the year prior,
underpinned by both employment and labor force growth. Further,
unemployment rates were below state (8%) and national (8.3%)
averages. The county's per capita money income and median household
income are both 99% of national averages.
The county's historical population out-migration trend appears
to have moderated and shows early signs of reversal, with marginal
population growth of 1.2% over the past decade. The county's
housing market did not experience a boom or bust through the past
economic cycle, resulting in continued assessed valuation growth
albeit at a nominal pace the last several years including a 0.7%
increase in 2012.
REVENUE DIVERSITY
The county's revenues are derived from diverse sources, with
property tax (29%), sales tax (33%), and state (17%) and federal
aid (14%) comprising the majority of 2010 revenues. However, a
majority of the sales tax is a pass-through to the state and
underlying municipalities. The county has experienced some
budgetary volatility in 2009 and 2010 driven by state aid
reductions and delays in payments as well as economic volatility of
the county's sales tax.
The county's finances are further characterized by high fixed
costs, characteristic of many New York counties; use of one-time
sources for operations. Additionally, Fitch anticipates that growth
in the tax base will be the only source of property tax revenue
growth because of management's commitment to a static tax rate; the
rate remains unchanged from the 2008 levy.
SLIM OPERATING MARGIN TREND
The county outperformed its budget and contributed to fund
balance in 2010. Results would have been effectively break-even if
the county had paid its full pension liability. This performance
continued the prior year's trend operations, resulting in a total
fund balance of $12.2 million (1% of general fund spending and
transfers out) and the county's first unreserved fund balance since
2005. While the unreserved fund balance was a nominal $89,000 (less
than 0.1% of general fund spending), this result was achieved
despite state aid reductions and delays and a static tax rate.
2011 operations appear to continue this trend, with the county's
third quarter financial report estimating a range of results from
approximately break-even to a surplus of $4.2 million (0.3% of
spending). Management indicated favorable results carried through
year-end, but did not provide publicly available documentation.
Positive operations are attributable to a strong rebound in sales
tax collection, up 5.6% from year-on-year, and positive cost
containment.
LIQUIDITY REMAINS DEPENDENT ON BORROWING
The county's liquidity levels are low but considerably more
robust at year end of 2010 than reported in the general fund
because the county manages its cash on a pooled cash basis.
Year-end is typically a low-point in the county's liquidity due to
the timing of tax collections. Monroe County's cash flow borrowing
needs remain consistent with historic trends at $75 million, which
has been stable over the past four years and is down from prior
more elevated levels.
PROJECTED STRUCTURAL DEFICIT
The 2012 budget maintains the county's current property tax rate
and incorporates approximately $2 million in current year savings
anticipated through a 42-FTE reduction in staff. The budget
continues the county's use of one-time revenues for operations,
anticipating $33.5 million (4.8% of general fund spending) from the
sale of property tax liens and county-owned buildings.
Fitch believes the county could experience some negative
budgetary variances due to continued state aid cuts and potential
delays in its asset sales. The county's multi-year budget forecast
anticipates a combined $106 million structural gap for 2013 and
2014. While the forecast is based on conservative assumptions and
thus the county may realize better actual results, Fitch will
continue to monitor the county's ongoing structural solutions to
address its deficits.
MANAGEABLE LONG-TERM LIABILITIES
The county's debt profile is a credit positive, with moderate
overall net debt per capita of $2,036 and 3.9% of market value.
Amortization is rapid, with 85% retired in 10 years. Debt service
remains a manageable portion of the county's spending at 5.7% of
the 2012 general fund budget.
The county's six-year capital improvement plan contemplates
approximately $370 million in improvements and a manageable $80
million in biennial bonding commencing in June 2012. Management
expects that the balance of capital needs will be funded through
excess operating revenues from county enterprise funds as well as
federal, state, and district funds.
The county participates in state-run cost-sharing defined
benefit pension plans which are well-funded under the aggregate
cost valuation method. The 2012 budget pension payment represents a
low 2.5% of general fund spending. Nevertheless, the county is
participating in the state pension payment amortization plan in
2010 and 2011 and may continue to do so.
The county's OPEB liability does not represent near-term
financial pressure, as pay-as-you-go funding represented a small
1.6% of spending. The unfunded actuarial liability represented a
low 1.2% of market value.
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 Fitch's
Tax-Supported Rating Criteria, this action was additionally
informed by information from CreditScope, 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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