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New Issue:

MOODY'S AFFIRMS THE Aa3 RATING FOR THE CITY OF BEACON (NY) G.O. DEBT

18 Feb 2011

Aa3 RATING AFFECTS $26.8 MILLION IN RATED DEBT, INCLUDING THE CURRENT OFFERING

Municipality
NY

Moody's Rating

ISSUE

RATING

Public Improvement Refunding Serial Bonds, Series 2011A

Aa3

  Sale Amount

$4,550,000

  Expected Sale Date

02/22/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, Feb 18, 2011 -- Moody's Investors Service has assigned a Aa3 rating to the City of Beacon's (NY) $4.55 million in Public Improvement Refunding Serial Bonds, Series 2011A. At this time, Moody's has also affirmed the Aa3 rating on the city's $26.8 million in outstanding general obligation debt. The current issue is secured by the city's general obligation, unlimited tax pledge. Proceeds from the bonds will be used to advance refund Public Improvement Bonds, 1996 and Public Improvement Bonds, 2001 for net present value savings in excess of 6%.

RATINGS RATIONALE

The Aa3 rating reflects the city's currently adequate financial position, it's moderately sized tax base with average wealth levels and it's above average debt burden.

STRENGTHS:

Management's willingness to increase property taxes to address a structural imbalance.

Benefits from regional economic health.

WEAKNESSES:

Pressures of tax base declines and economically sensitive sales tax revenues.

Uncertainty of the potential impact of open labor contracts.

ADEQUATE FINANCIAL POSITION; FURTHER RESERVE DECLINES WOULD COMPROMISE CREDIT HEALTH

Moody's expects the city's financial position will remain adequate given a return to conservative budgeting for economically sensitive revenues. In three consecutive years, FY2006 through 2008, the city of drew down General Fund balances, in part because of declines in sales taxes and falling assessed values, as well as a one-time land purchase in 2007. Despite the appropriation of $1.3 million in fund balance, fiscal 2009 ended with a General Fund increase of $284,000 to $3.5 million (20.6% of revenues) from $3.3 million (20.8% of revenues). The General Fund increase was largely attributed to a sizeable transfer of $1.3 million from the Capital Projects Fund. Net of the transfers, the city finished the fiscal year with an operating deficit of $588,000. While final results are not yet available for FY 2010, city management is projecting essentially balanced operations for FY 2010.

Closing of the city's structural gap in FY2011 was achieved through a substantial increase in the property tax rate as well as increased sales tax collections. Sales tax represents the city's second largest revenue source at 27% of revenues behind property taxes at 46% of revenues. In March 2010 the sales tax base was increased to include clothing and shoes sales under $110. Collections are remitted semi-monthly by the county with a two month lag. Dutchess County has one of the state's highest increases in sales tax collections, and continued collection growth flowing to the city is forthcoming. Should the city fail to achieve balanced operations in FY2010, and closes with an operating deficit and resultant reduction in General Fund balance, credit health would be compromised.

Positively, the city has lowered appropriation of fund balance to $600,000 , about half of what he city budged for in fiscal 2010. Additionally, the budget was balanced with a budgetary 14% increase in property tax revenues and conservatively budgeted sales tax revenue increase of 8.3% over the 2010 estimated actual, significantly below Dutchess County's estimated increase of 9.5%. Possible budgetary pressures for 2011 budget could develop if the open union contracts are settled beyond available resources. The city is going to arbitration for the police contract; and contingency funds for settlements are budgeted. Future rating reviews will heavily factor the city's ability generate operating surpluses through conservative budgeting of economically sensitive revenues (sales tax) and expenditures.

PREDOMINATELY RESIDENTIAL HUDSON RIVER COMMUNITY WITH AVERAGE WEALTH LEVELS

As anticipated, Beacon's $1.1 billion tax base declined over the past three years from the general housing market contraction and weak economy. After seven years of double digit full value growth the city has experienced three consecutive years of decline. The declines are partially due to successful reassessment of properties and the weaking of the overall housing market. However, Moody's expects the city's tax base to remain stable over the long-term given it's location, 60 miles north of New York City (G.O. rated Aa2), in Dutchess County (G.O. rated Aa1). Management notes that new construction projects have either slowed or put on hold during the past two years. One large commercial undertaking on the Hudson River, the Long Dock project, which was expected to add $15 million of tax base growth has been put on hold. However, two other projects are presently underway: a $3 million expansion by Mechtronics and the Round House project, a hotel, restaurant, artist live/work space. Both projects are expected to be on the tax rolls for fiscal 2013.

Wealth indices approximate New York state averages and the full value per capita is a moderate $77,409.

ABOVE AVERAGE DEBT BURDEN WITH LIMITED PLANS FOR ADDITIONAL DEBT

Moody's expects the city's net direct debt burden (1.6% of full value) to remain elevated over the near-term given the city's currently above average debt levels and slowing tax base growth. When factoring overlapping county and school district obligations the city's overall debt burden increases to an above average 2.6% of full value. Debt service is relatively high at 12.3% of General Fund expenditures, compared to the 7.7% state and 7.5% national medians. Principal amortization is average at 79% in 10 years. Additional debt plans includes the issuance of approximately $3million in the summer of 2011. The city maintains a 5-year capital improvement plan showing moderate capital needs. The city has no variable rate debt outstanding and has not entered into any derivative agreements.

WHAT COULD MAKE THE RATING GO UP:

Significant additions to the city's tax base.

Significant increase in socio-economic profile of the city.

WHAT COULD MAKE THE RATING GO DOWN:

Operating deficits resulting in reduction of the General Fund balance.

Significant declines in tax base or socio-economic statistics.

KEY STATISTICS

2008 Population: 14,566 (5.5% since 2000)

2011 full valuation: $1.1 billion

2011 full value per capita: $77,409

Direct debt burden: 1.6%

Overall debt burden: 2.6%

Payout of principal (10 years): 78.8%

FY09 General Fund balance: $3.5 million (20.1% of General Fund revenues)

FY09 Undesignated Fund balance: $1.0 million (5.6% of General Fund Revenues)

Median Family Income: $53,811 (104.1% of state, 107.5% of U.S.)

Per Capita Income: $20,654 (88.3% of state, 95.7% of the U.S.)

Post-sale Parity Debt outstanding: $26.8 million

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings and public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Patricia McGuigan
Analyst
Public Finance Group
Moody's Investors Service

Robert Weber
Backup Analyst
Public Finance Group
Moody's Investors Service

Geordie Thompson
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S AFFIRMS THE Aa3 RATING FOR THE CITY OF BEACON (NY) G.O. DEBT
No Related Data.
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