News Column

Fitch Rates Oneida County, NY's, $26.7MM GOs 'A+'; Outlook Stable

May 5, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns the following rating to Oneida County, New York's (the county), general obligations (GO):

--$26,755,000 public improvement (serial) bonds, 2014 'A+'.

The public improvement bonds are expected to sell competitively the week of May 12.

Additionally, Fitch affirms the 'A+' rating on $109.7 million county GO bonds.

The Rating Outlook is Stable.

SECURITY

The current offering, and bonds issued after 2010, are secured by the county's full faith and credit and taxing power, subject to a 2011 state statute limiting increases in the property tax levy to the lesser of 2% or an inflation factor (tax cap law). This limit can be overridden by a 60% vote of the county legislature.

The county has pledged its full faith and credit and unlimited taxing power for debt service on outstanding GO bonds issued prior to 2011. 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

CONSTRAINED FINANCIAL OPERATIONS: The county's fiscal profile is constrained by sizeable mandated social services spending, federal and state aid reductions, and limited revenue flexibility. However, the county continues to manage positive financial performance with expenditure cuts and careful budgeting.

BELOW AVERAGE ECONOMY; SOME DEVELOPMENT: Below average income and a stagnant population negatively influence the economic profile. Job growth remains somewhat tepid but the county is seeing benefits from continued local investment.

MANAGEABLE DEBT AND LONG-TERM LIABILITIES: The county's low-to-moderate overall debt and rapid payout remains a credit strength. Carrying costs for debt in addition to long-term liabilities related to pension and other post-employment benefits (OPEB) are very manageable.

TAX LEVY LIMIT: Bond issued after 2010 are rated on parity with outstanding GO debt because the county may exceed the tax cap in any one year with 60% approval of the county legislature.

RATING SENSITIVITIES

CONSISTENT OPERATING RESULTS: The 'A+' rating reflects Fitch's expectation of a general trend of stable operating results over the near term.

CREDIT PROFILE

Oneida is located in central upstate New York in the area commonly known as the Mohawk Valley and is home to the cities of Utica and Rome. The county's historical population out-migration trend has moderated, with the estimated 2012 population of 234,287 essentially unchanged from the 2000 Census.

POSITIVE FINANCIAL PERFORMANCE

The general fund reported a surplus of $8.2 million (2.5% of spending) in fiscal 2012, beating a $2 million budgeted use of fund balance. Results were driven by more conservative budgeting, positive sales tax performance and headcount reduction through attrition to a reportedly 30-year low.

The unrestricted fund balance at the end of 2012 totaled $17.3 million or 5.2% of spending. The unrestricted fund balance does not include $12 million restricted for fiscal stability, up $2 million from 2011, which Fitch considers an available resource. Combined available balances totaled 9.3% of fiscal 2012 spending.

Preliminary estimates for 2013 suggest that the county's operations resulted in another operating surplus after transfers of $1.5 million, improving on its budgeted use of $1.9 million of fund balance and comfortably incorporating one-time costs of $6 million for early pension amortization repayment and union back pay. Sales tax performed strongly for the year, up 2.2% year-on-year.

OPERATING CONSTRAINTS; ONEIDA NATION SETTLEMENT A POSITIVE

Oneida County's finances remain challenged by a high and growing mandated social service burden, similar to many upstate New York counties. Federal and state aid reductions and limitations on revenue raising exacerbate this concern. Positively, Medicaid spending growth, a significant expense for the county, will shift to the state through 2015 providing a small measure of mandate cost relief.

The recent resolution of decades-long lawsuits with Oneida Indian Nation (the nation) should benefit the county's financial profile. The county will receive 6.25% of shared electronic gaming revenues generated at Turning Stone Resort (the resort). The county projects new revenues to approximate $12.5 million annually which would add 3.8% to fiscal 2013 estimated revenues and represent 3.8% of the total. However, the final impact is likely less given the loss of resort-generated food and beverage sales tax and anticipated revenue sharing with underlying municipalities.

The state granted the nation exclusive operating rights, as part of the settlement, within the 10-county central New York region in perpetuity. As a result, revenue volatility to the county related to competition, is somewhat mitigated. Fitch notes positively that the county plans to use gaming revenues for one-time and capital expenditures, providing budget flexibility against gaming volatility. The nation will additionally contribute $2.5 million/year through 2033 to satisfy prior existing tax liens on property transferred to trust.

The 2014 budget is balanced with a small use of reserves, consistent with prior practice. The county did not increase its property tax levy and sales tax is budgeted to increase by 2.4% from prior actual. None of the above revenue adjustments are incorporated into the county's 2014 budget.

REVENUE DIVERSITY A CREDIT POSITIVE

The county's revenues are derived from diverse sources. The majority of 2012 revenues composed of property tax (21.4%), state aid (14.7%), federal aid (16.8%), and sales tax (37.5%, but closer to 30% net of pass-throughs to locals under revenue sharing agreements).

Property tax levy increases are limited by 2011 state legislation to the lesser of 2% or a consumer price inflator, which can be overruled by a 60% vote of the county's legislature. Fitch remains concerned about the low 92.3% collection rate for current property taxes (fiscal year 2013) reflective of continued economic challenges. Collections continue to improve and more importantly, the county's conservative budgeting approach is evident in its positive operating results.

STABLE, BELOW-AVERAGE ECONOMIC PROFILE

The county's real estate market weathered the national housing downturn well. Assessed valuation continues to grow as a result of continued development and local revaluations. Consistent with the upstate New York region, median household income levels in the county remain below average at 85% and 91% for state and national averages respectively. Market value per capita is weak at $43,000, and Zillow projects some weakness in the local housing market.

The county's unemployment rate declined markedly to 6.6% in December 2013, from 8.8% year prior, driven by employment gains and labor force losses. The unemployment rate is on par with state and national averages.

The services sector remains a major contributor to the county's employment base. Metropolitan Insurance, Bank of America, and Mohawk Valley Network, a major medical facility, as well as other health care and social service providers operate within the county.

Griffiss Business and Technology Park (Griffiss Park) is a 3,500 acre multi-use business, technology, and industrial park. The park continues to attract development with $31.2 million in public and private funding invested over the past year. Griffiss Park is home to numerous air force and defense research firms as well as several manufacturing firms. Additional developments related to nanotechnology and State University of New York partnerships should aid economic growth in the local economy.

LOW DEBT AND LONG-TERM LIABILITIES

The county's debt profile is a credit positive, with low overall debt per capita of $1,461 but a more moderate 3.3% of market value. Amortization is rapid, with 86% retired in 10 years.

The county's current six-year capital improvement plan (CIP) envisions a manageable $222 million of general government improvements (excluding utilities), the majority of which are discretionary in nature.

The county participates in state-run cost-sharing defined benefit pension plans which are well-funded under the aggregate cost valuation method. The county has been participating in the state pension payment cost smoothing plan since 2011 and may continue to do so. This option provides some near-term budget relief but will make future year budgeting for these payments more challenging.

However, Fitch views positively the county's pre-payment of $4 million in early retirement program borrowing in December 2013. The county has deferred 35% or approximately $5.4 million of its actuarial required contribution (ARC) in the current year. Carrying costs for debt service, pension, and OPEB would consume a low 10.7% of spending, assuming the full pension ARC.

As of Dec. 31, 2013, the county's OPEB liability totaled $76 million, up from years prior due to actuarial corrections, but was a very low 0.73% of market value. Carrying costs are still low at 11.7% of spending assuming the full OPEB ARC.

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, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, and Zillow.

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst:

Stephen Friday, +1-212-908-0384

Associate Director

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst:

Karen Wagner, +1-212-908-0230

Director

or

Committee Chairperson:

Jessalynn Moro, +1-212-908-0608

Managing Director

or

Media Relations:

Elizabeth Fogerty, New York, +1-212-908-0526

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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