News Column

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

June 5, 2014

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

--$34,800,000 general obligation (GO) serial bonds, 2014;

--$19,730,000 GO refunding serial bonds, 2014.

The new money bonds are scheduled for competitive sale on June 12 followed by the refunding bonds on June 18.

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 $305.4 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.

STRONG AND CONSISTENT FINANCIAL POSITION: Prudent fiscal policies and budgetary conservatism have resulted in solid financial performance highlighted by healthy reserve levels.

MANAGEABLE DEBT PROFILE: The debt profile remains manageable, characterized by an average overall debt burden, modest carrying costs and above-average amortization coupled with moderate capital plans.

RATING SENSITIVITIES

CONTINUED STRONG FINANCAL POSITION: The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are 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. In 2013 the population was estimated at 468,387, 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. In March 2014 the county's unemployment rate was 6.4% compared to 7.2% and 6.8% for the state and nation, respectively. Although lower than the 7.4% recorded in March 2013, the improvement year-over-year was due to the decline (1.6%) in the labor force outpacing a slight decline (0.5%) in employment, both of which under-performed increases in state and national figures.

The tax base has remained relatively stable and is diverse with the top 10 taxpayers comprising a modest 5.6% of assessed value. The county's housing market experienced minimal foreclosures and declines in average medium home prices during the recession. Income levels are slightly below state levels but comparable to national averages.

WELL-MANAGED CONSISTENT FINANCIAL POSITION

For 2013 (year-end Dec. 31), general fund operations outperformed budget as a $15 million planned use of fund balance was reduced to $2.8 million. The county ended 2013 with an unrestricted general fund balance of $89 million, or a healthy 12.5% of general fund spending. Fitch views positively the consistent maintenance of healthy reserve levels. Since 1999, the county's unrestricted fund balance has exceeded its 10% (of revenues) goal in every year except 2004.

Sales tax is the largest source of general fund revenue, comprising 47% in 2013. 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 $245 million in 2013, an $11 million increase over 2012. This increase in sales tax helped offset a budgeted $7.2 million reduction in the property tax levy. Property tax collections, which represent 21% of general fund revenues, outperformed the 2013 budget by $5 million. The creation of a 'land bank' has contributed to an increased collection of current and delinquent property taxes.

SALE OF COUNTY-OWNED NURSING HOME A POSITIVE

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 $3.7 million in 2014) for debt service, retiree health and existing worker's compensation claims filed before the sale.

BUDGETED USE OF FUND BALANCE IN 2014

The 2014 adopted budget totals $1.2 billion in total expenditures, 3% below the 2013 budget due primarily to the sale of the nursing home. The general fund budget includes $2.5 million use of fund balance as well as no increase in the property tax levy. The county is projecting an unrestricted general fund balance of 11.50% of general fund revenues, within the county's policy.

Management's current projections show a $3.4 million surplus. Contributing to the surplus are projected savings in mandated costs and better than budgeted property tax collections. Management reports that gross sales tax receipts through May are 2.8% 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.

MANAGEABLE DEBT PROFILE

The county's debt levels are manageable. Debt per capita at $1,859 is below average with debt-to-taxable market value moderate at 2.5%. Debt amortization is rapid with 83% retired in 10 years. The county's six-year (2014-2019) capital improvement plan (CIP) outlines $179 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, 2013, ERS had a funded ratio of 87%. Using Fitch's more conservative 7% discount rate assumption, the plan's funding level would still be sound at an estimated 82%. The county contributes the full amount of its required contribution annually, equal to 4.2% of government fund spending in 2013. The county has not participated in the pension-smoothing option provided by the state, which Fitch views positively.

The county currently funds its 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, 2013, the county's OPEB liability totaled $973.2 million or what Fitch considers a high 3.6% of market value. Total carrying costs, inclusive of debt service and pension and OPEB costs, equaled a modest 11.7% of total government spending in 2013.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=833156

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

Karen Wagner

Director

+1-212-908-0230

Fitch Ratings, Inc.

33 Whitehall St.

New York, NY 10004

or

Secondary Analyst

Eric Friedman

Director

+1-212-908-9181

or

Committee Chairperson

Amy Laskey

Managing Director

+1-212-908-0568

or

Media Relations

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

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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