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MOODY'S ASSIGNS A1 ENHANCED AND UNDERYLING RATING TO COHOES CITY SCHOOL DISTRICT'S (NY) $18.6 MILLION GO BONDS; UNDERLYING OUTLOOK REVISED TO NEGATIVE

04 Apr 2011

A1 RATING AND NEGATIVE OUTLOOK AFFECTS $42 MILLION IN PARTIY DEBT, INCLUDING THIS ISSUE

Primary & Secondary Education
NY

Moody's Rating

ISSUE

UNDERLYING
RATING

RATING

School District Serial Bonds, 2011

A1

A1

  Sale Amount

$18,625,000

  Expected Sale Date

04/05/11

  Rating Description

General Obligation Bonds

 

 
Moody's Outlook   Negative
 

Opinion

NEW YORK, Apr 4, 2011 -- Moody's Investors Service has applied a A1 enhanced rating and assigned a A1 underlying rating to Cohoes City School District's (NY) $18.6 million General Obligation, Series 2011. Concurrently, Moody's has affirmed the district's $26.3 million parity debt. We have revised the outlook to negative on district's general obligation debt.

SUMMARY RATING RATIONALE

The bonds are secured the district's unlimited tax pledge. The A1 rating reflects Moody's expectation that the district will maintain sound financial reserves despite potential draws on reserves during fiscal 2011. It also incorporates the district's high debt burden, which is offset by significant state aid, and limited tax base.

The negative outlook reflects potential narrowing of the district's financial flexibility during fiscal 2012 given potential state aid cuts and its currently adequate reserve position that is expected to narrow during fiscal 2011.

The A1 enhanced rating is based upon the additional security provisions offered by New York State's school debt intercept program. New York's school debt enhancement program, contained in Section 99-B of the State Finance law, authorizes the state to withhold future allotments of state aid in order to make bond payments in the event of default by the school district. While the program does not ensure avoidance of a pending default or guarantee immediate repayment, Moody's believes it does enhance the potential for recovery upon default and that the cure period is likely to be short.

Proceeds from this issue will be used to permanently finance $13.4 million in bond anticipation notes and fund various other capital projects.

STRENGTHS

-Stable although limited tax base

CHALLENGES

-Limited financial flexibility

-High debt burden

DETAILED CREDIT DISCUSSION

FINANCIAL OPERATIONS SATISFACTORY, BUT EXPECTED TO NARROW

Moody's expects the district's financial flexibility will narrow over the next several years as fiscal 2011 and 2012 are expected to produce operating deficits which will result in the decline of the district's currently satisfactory reserve position. Over the last several years, management has steadily grown its unreserved fund balance to $2.8 million (8% of General Fund revenues) in fiscal 2010 from a low of $1.3 million (4.3% of General Fund revenues) in fiscal 2006. The increases in reserves reflect improved budgeting for state aid revenues and sufficient tax levy increases to meet ongoing spending pressures. Property taxes represent the district's second largest source of General Fund revenues at 39% of fiscal 2010 revenues.

Moody's anticipates the district will be challenged to offset the recent state aid cuts with property taxes increase as the fiscal 2011 budgetpassed on the second attempt for the first time in the district's recent history, despite a history of strong voter support. The final budget included a modest 1.5% levy increase and a $765,000 fund balance appropriation, the highest in recent history, to fund a 4.3% increase in spending from fiscal 2010 (budget-to-budget). Increases in spending reflected contractual salary increases and escalating pension costs. Based on year-to-date results and a recently implemented spending freeze on non-essential line items, management anticipates minimal replenishment of fund balance appropriation which would likely result in an ending unreserved fund balance of approximately 5-6% of budgeted revenues. Preliminary fiscal 2012 budget discussions have centered on closing the $1.8 million budget gap driven by the loss of $1.1 million in stimulus funds or a 5% decrease in state aid (53% of General Fund 2010 revenues). The gap has been partially offset by approximately $511,000 in one-time Federal Education Jobs Aid bill funds and management anticipates the remaining gap will be funded through a combination of reserve appropriation, increase in property taxes, and adjustments in personnel costs through wage freezes and a possible reduction in headcount. Looking forward, management's ability to maintain adequate financial flexibility by offsetting likely declines in state aid and a return to structural balance will be a key rating driver. Inability to do so would likely result in downward rating pressure as it would represent an erosion of the district's financial credit profile.

LIMITED TAX BASE NORTH OF ALBANY EXPECTED TO REMAIN STABLE

Moody's believes that the district's limited $739 million tax base will remain stable, given an absence of significant pending tax appeals and a modest amount of residential development. The district is a mature, mostly residential community coterminous with the City of Cohoes (G.O. rated A2), seven miles north of Albany (G.O. rated A1). Reflecting market appreciation, full values have increased at an average annual rate of 9.4% over the past five years. However, assessed values have grown at a much slower rate averaging 0.6% annually over the past five years. Resident wealth indicators remain below average with per capita personal income at 79% and 86% of state and national averages, respectively. Similarly, median family income equals 82% and 84% of state and national averages, respectively.

HIGH DEBT BURDEN MITIGATED BY SIGNIFICANT STATE BUILDING AID

Moody's anticipates that the district's high direct debt burden (5.8% of full value) will remain manageable given significant levels of state building aid, rapid amortization of principal (82.6% in ten years), and limited future borrowing plans. Adjusted for state building aid which is equal to 92.3%, direct debt burden decreases to a manageable, albeit above-average, 2.7% of full value. The district's overall debt burden, including obligations of the City of Cohoes and Albany County (G.O. rated A1), increases to 8% of full value. The district's aggressive debt amortization schedule results in annual debt service equal to an above-average 11.3% of expenditures. Future borrowing plans include an additional $4.3 million in Qualified Zone Academy Bonds. The distirct does not have any variable rate debt and is not party to any derivative agreements.

WHAT COULD MAKE THE RATING GO UP (Removal of negative outlook)

-Replenishment of projected fund balance draws and return to structural balance

-Improvement of financial flexibility as evidenced by growth of financial reserves

-Substantial tax base expansion

WHAT COULD MAKE THE RATING GO DOWN

-Significant draws on reserves beyond fiscal 2011 budgeted expectations

-Inability to return to long-term structural balance

KEY STATISTICS

2000 population: 15,521

2011 full valuation: $739 million

2011 full value per capita: $47,401

Direct debt burden: 5.8% (adjusted for state building aid: 2.7%)

Overall debt burden: 8%

Payout of principal (10 years): 82.6%

FY 2010 Unreserved General Fund balance: $2.8 million (8% of General Fund revenues)

1999 Median Family Income: $42,197 (81.6% of state)

1999 Per Capita Income: $18,479 (79.0% of state)

PRINCIPAL METHODOLOGY USED

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

Dora Lee
Analyst
Public Finance Group
Moody's Investors Service

Jessica A. Lamendola
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 ASSIGNS A1 ENHANCED AND UNDERYLING RATING TO COHOES CITY SCHOOL DISTRICT'S (NY) $18.6 MILLION GO BONDS; UNDERLYING OUTLOOK REVISED TO NEGATIVE
No Related Data.
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