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MOODY'S ASSIGNS A1 RATING TO THE CITY OF WATERTOWN'S (NY) $7.62 MILLION G.O. BONDS

28 Mar 2011

A1 RATING APPLIES TO APPROXIMATELY $27.5 MILLION PARITY DEBT OUTSTANDING, INCLUDING CURRENT ISSUE

Municipality
NY

Moody's Rating

ISSUE

RATING

Public Improvement Refunding (Serial), 2011 Series A

A1

  Sale Amount

$2,170,000

  Expected Sale Date

03/31/11

  Rating Description

General Obligation

 

Public Improvement Refunding (Serial), 2011 Series B

A1

  Sale Amount

$1,770,000

  Expected Sale Date

03/31/11

  Rating Description

General Obligation

 

Public Improvement Refunding (Serial), 2011 Series C (Federally Taxable Series)

A1

  Sale Amount

$3,680,000

  Expected Sale Date

03/31/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, Mar 28, 2011 -- Moody's Investors Service has assigned an A1 rating to the City of Watertown's (NY) $2.2 million Public Improvement Refunding (Serial) Bonds, 2011 Series A, $1.8 million Public Improvement Refunding (Serial) Bonds, 2011 Series B, and $3.7 million Public Improvement Refunding (Serial) Bonds, 2011 Series C (Federally Taxable) . Concurrently, Moody's has affirmed the A1 rating on the city's $27.5 million of previously issued parity debt. The bonds are secured by the city's general obligation, unlimited tax pledge and proceeds will be used to advance refund Public Improvement Bonds, 1997 Taxable Series A; Public Improvement Bonds, 1997 Tax Exempt Series B; Public Improvement Bonds, 2000; and Public Improvement Bonds, 2002 for a net present value savings in excess of 7%.

RATINGS RATIONALE

The A1 rating reflects the city's stable financial position characterized by healthy reserves, a medium-sized tax base with below average wealth levels, and a manageable debt burden.

STRENGTHS

Strong General Fund balances

Stable tax base

CHALLENGES

Potentially sensitive revenues

Low socioeconomic indices

SIZABLE RESERVES MITIGATE RISKS FROM POTENTIALLY SENSITIVE REVENUES

Moody's anticipates that the city's financial position will remain strong given two years of healthy operating surpluses: $2.2 million and $.9 million in fiscal years 2009 and 2010, respectively. This is a strong rebound from the fiscal 2008 $1.4 million operating deficit which resulted from underperforming sales taxes and reduced hydroelectric revenues caused by a record dry year. The city expects that capital improvements at the hydro plant will allow the plant to run more effectively should another dry season occur. In fiscal 2010 the city budgeted a $1.9 million operating deficit but , largely through expenditure control, the city achieved an operating surplus and the General Fund balance climbed to a substantial $14.6 million, or 39% of revenues. Sales tax collections also outpaced budget in fiscal 2010. City officials report that a marketing program in the Fall of 2010 to attract Canadian shoppers was an effective effort. Jefferson County is currently one of the leaders in the state for sales tax growth. While the overall General Fund balance increased in fiscal 2010, the reserve for self insurance of general liability declined due to a claim of $600,000. This is the city's second claim since it began self insuring for general liability in 1985.

The city's fiscal 2011 operating budget essentially reflects the prior year's spending level, less than a 1% increase. While the city again appropriated fund balance (approximately $1 million), officials report revenues and expenditures are coming in favorably as compared to budget such that an operating surplus is expected. The budget was recently amended to include a $1.1 million appropriation to pay down high coupon debt, thus fund balance is likely to close just under $14 million. Given the nonrecurring nature of this appropriation and the long term benefits from the paydown, Moody's views this as a prudent use of reserves. Moody's believes that maintenance of healthy reserves is a key credit consideration, given the city's relatively high dependence on economically-sensitive sales tax revenues. Sales tax and other non-property tax items are the city's primary sources of revenue, accounting for 43.8% of 2010 General Fund revenues. Moody's will continue to factor management's ability to maintain satisfactory reserves going forward

STABLE TAX BASE ANCHORED BY MILITARY BASE

Moody's expects the city's $1.1 billion tax base will remain stable, reflecting the city's regional importance as the Jefferson County (G.O. rated Aa3) seat, and expected growth driven by an increasing military population. Watertown is considered a major retail and wholesale shopping center for northern New York and benefits from a diverse local economy. In addition, the city's economy benefits from its proximity to Fort Drum, located in the Town of LeRay, which is home to approximately 18,023 soldiers with an estimated 17,222 local family members; additionally, the installation employs 4,782 civilians. Accordingly, the city has experienced healthy residential development, as only one-third of the military population lives on-base. The average annual growth in full value of real property for 2005 through 2011 is a sizeable 9.9%. City wealth levels are below state averages, with per capita income and median family income each at 69.9% of statewide averages. The 2000 poverty rate was a sizeable 19.3%. Full value per capita is modest at $38,520.

MANGEABLE DEBT BURDEN

Moody's anticipates that the city's above average debt burden will remain manageable given the city's rapid repayment of existing debt obligations (85% of principal repaid within ten years), ongoing use of cash for capital projects and modest future borrowing plans. The city's direct debt is above state and national medians at 1.6% of full value and expands to a higher 4.6% when including overlapping obligations of underlying municipalities. While debt service comprised a relatively high 10.5% of operating expenditures in fiscal 2010, this adjusts to 7.3% when deducting debt service supported by hydro plant revenues. The city maintains an updated five capital improvement plan; and anticipates issuing approximately $3 million in about two months. Moody's believes that additional borrowing will remain manageable, as it will be absorbed by retiring debt. All the city's debt is fixed-rate and the city has no exposure to swaps or other derivative instruments.

WHAT COULD MAKE THE RATING GO UP

Significant additions to the tax base.

Significant increase in the socioeconomic profile of the city.

WHAT COULD MAKE THE RATING GO DOWN

Substantial reduction in reserves.

KEY STATISTICS:

2000 Population: 26,705

2008 Population (est.): 27,310

2010 Full valuation: $1.1 billion

2010 Full value per capita: $38,520

Direct debt burden: 1.6%

Overall debt burden: 4.6%

Payout of principal (10 years): 85.1%

Fiscal 2009 General Fund balance: $14.6 million (39.5% of General Fund revenues)

Per capita income as a % of State: 69.9%

Median family income as a % of State: 69.9%

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

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 RATING TO THE CITY OF WATERTOWN'S (NY) $7.62 MILLION G.O. BONDS
No Related Data.
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