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MOODY'S ASSIGNS Aa1 RATING TO DUTCHESS COUNTY'S (NY) $21 MILLION GENERAL OBLIGATION BONDS

23 Nov 2010

Aa1 RATING APPLIES TO $122 MILLION OF PARITY DEBT, INCLUDING THE CURRENT ISSUE

County
NY

Moody's Rating

ISSUE

RATING

Public Improvement Bonds, Series 2010 A

Aa1

  Sale Amount

$21,021,000

  Expected Sale Date

12/03/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Nov 23, 2010 -- Moody's Investors Service has assigned a Aa1 rating to Dutchess County's (NY) $21 million Public Improvement (Serial) Bonds, 2010. Concurrently, Moody's has affirmed the county's Aa1 rating affecting $102 million in outstanding parity debt. The bonds are secured by the county's general obligation, unlimited tax pledge. Proceeds from the current issue will fund various capital improvement projects.

RATING RATIONALE

The rating reflects the county's satisfactory financial position, sizable tax base with above average wealth levels and modest debt burden.

SATISFACTORY FINANCIAL POSITION; CYCLICAL PRESSURES MAY CHALLENGE STRUCTURAL BALANCE

Dutchess' financial position is expected to face near-term pressures resulting from the county's reliance on economically sensitive revenue streams and ongoing expenditure pressures. The county's operations have been structurally imbalanced with draws on reserves in two out of the last three fiscal years. In fiscal 2009 (ended December 31) operations ended with a significant $12.1 million operating deficit mainly driven by underperforming sales tax receipts ($14.6 million under budget). Previously excluded, footwear and clothing were included in the sales tax projections in 2009, however approval was not granted until the following fiscal year. As a result, General Fund balance decreased to $51.8 million, equal to a still adequate 13.5% of revenues. Approaching the close of fiscal year 2010, management is unable to estimate whether operations will fully replenish $17.7 million of appropriated fund balance. Moody's expects operations to be balanced at minimum, however, sales tax revenues were budgeted flat but are projected to have increased by 9.5% over the prior year actual receipts given the inclusion of footwear and clothing in the sales tax base. Additionally, management reports expenditure savings related to pension costs ($750,000 under budget) and receipt of federal stimulus through the enhanced Federal Medical Assistance Percentage ($2.9 million over budget).

The fiscal 2011 preliminary budget incorporates growth of 4% primarily driven by increasing Medicaid, education, and social program expenditures. Expenditure growth and a reduced fund balance appropriation (to $10 million) are offset with program and staff reductions and projected 6% growth in sales tax revenues, presenting some vulnerability given uncertainty regarding the national and regional economic recovery. Further, the budget anticipates reinstatement of the county's mortgage tax; this new revenue source has not yet been approved by New York State (G.O. rated Aa2/stable). The county's primary revenue sources are sales tax (36.6%), state aid (28.6% and property tax (22.2%), supported by a satisfactory property tax collection rate of 95%. Dutchess County's' ability to return to structurally balanced operations in the near term after two years of operating deficits will be an essential component in future rating reviews.

SIZABLE TAX BASE EXPERIENCING PROPERTY VALUE REDUCTIONS

The county's $37 billion tax base, located in the Hudson Valley, is expected to continue to exhibit signs of softening over the near term reflecting market value reductions and slowing development trends. Revaluations in underlying towns and cities have driven healthy growth in taxable values, which increased at an average annual rate of 22.6% over the past five years, including substantial increases of 27.7% and 93.3% in 2007 and 2008, respectively. However, in contrast to prior years the county's fiscal 2009 assessed and full values saw declines of 3.6% and 3.1%, respectively, reflecting weakness in the regional real estate market. While cyclical challenges are anticipated, the overall stability of the county's tax base is expected to continue to be supported by the presence of IBM (senior unsecured rated A1/stable outlook) and a substantial government and non-profit presence. Employment at IBM (which represents a modest 0.5% of assessed value given a PILOT agreement which reduced taxable value in 1999) has been stable at 11,000 to 12,000 in recent years, reversing a prior trend of layoffs which began in 1992 and affected 11,000 employees. Additionally, the county is home to a number of sizable non-profit institutions including Vassar Brothers Hospital (A3/Stable Outlook- 1,688 employees), St. Francis Hospital (1,252 employees), Vassar College (Aa2/Stable Outlook- 1,181 employees), and Marist College (A2/Stable Outlook- 1,144 employees Stable/Outlook). County residents also benefit from employment opportunities in neighboring Westchester County (Aaa/Stable Outlook) and a growing number are commuting into New York City (Aa2/Stable Outlook). County wealth levels approximate those of the state with full value per capita an above average $127,242.

DEBT BURDEN EXPECTED TO REMAIN MODEST

Moody's expects the county's 0.3% debt burden will remain modest given its rapid rate of principal amortization (85.2% repaid within 10 years), low debt service levels and moderate future borrowing plans. Overall debt burden now equals 2% of full valuation (1.3% when offset by state school building aid to underlying school districts). Management expects to issue approximately$16 million in the medium term for infrastructure projects, an amount that is not expected to materially affect the county's debt profile. The county has no variable rate debt outstanding, no auction rate debt outstanding and has not entered into any derivative agreements.

What could make the rating change - UP

-- Maintaining financial flexibility in line with higher rating categories

-- Expansion of tax base and demographic profile to levels consistent with higher rating categories

What could make the rating change - DOWN

-- Protracted structural budget imbalance

-- Depletion of General Fund balance

-- Deterioration of the county's tax base and demographic profile

KEY STATISTICS:

2007 Population: 292,746

2009 Full value: $37.25 billion

Full value per capita: $127,242

Direct debt burden: 0.3%

Overall debt burden (adjusted for school building aid): 2% (1.3%)

2009 General Fund balance: $51.8 million (13.5% of General Fund revenues)

2009 Undesignated General Fund balance: $24.5 million (6.4% of General Fund revenues)

Per Capita Income: $23,940 (102.4% of NY, 110.9% of U.S.)

Median Family Income: $63,254 (122.4% of NY, 126.4% of U.S)

Post-Sale General Obligation debt: $122 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

Andy Moleon
Analyst
Public Finance Group
Moody's Investors Service

Jessica A. Tevebaugh
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
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USA

MOODY'S ASSIGNS Aa1 RATING TO DUTCHESS COUNTY'S (NY) $21 MILLION GENERAL OBLIGATION BONDS
No Related Data.
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