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MOODY'S ASSIGNS MIG 1 RATING TO UTICA CITY SCHOOL DISTRICT'S (NY) $24 MILLION BOND ANTICIPATION NOTES, SERIES 2010B

13 Sep 2010

A2 ENHANCED AND Baa1 UNDERLYING RATING AFFIRMATIONS APPLY TO $43.2 MILLION OF RATED LONG-TERM G.O. DEBT OUTSTANDING

Primary & Secondary Education
NY

Moody's Rating

ISSUE

RATING

Bond Anticipation Notes

MIG 1

  Sale Amount

$24,000,000

  Expected Sale Date

09/09/10

  Rating Description

Short-term BAN rating

 

Opinion

NEW YORK, Sep 13, 2010 -- Moody's Investors Service has assigned a MIG 1 rating to the Utica City School District's (NY) $24 million Bond Anticipation Notes, Series 2010B. Concurrently, Moody's has affirmed the A2 enhanced and Baa1 underlying ratings affecting the district's $43.2 million of previously issued long-term general obligation debt. The bonds and notes are secured by the district's general obligation unlimited tax pledge.

RATINGS RATIONALE

The A2 enhanced rating is based upon the additional security provisions offered by New York State's school debt intercept program. The long term general obligation rating on the State of New York is Aa2 with a stable outlook. 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 repayments, we believe it does enhance the potential for recovery upon default and that the cure period is likely to be short.

The Baa1 long-term underlying rating reflects the district's improved financial position, large urban tax base marked by below-average socioeconomic indicators, and elevated debt burden made more manageable by the district's high level of state building aid. The MIG 1 short-term rating reflects the district's adequate long-term credit profile and favorable history of market access, signifying the district's ability to refinance the notes at their September 9, 2011 maturity. The notes are being issued to finance various capital improvements to district facilities.

MIG 1 RATING REFLECTS DEMONSTRATED HISTORY OF MARKET ACCESS

The assignment of the MIG 1 rating to the notes reflects our expectation of the district's strong likelihood of market access at the note's maturity given the district's A2 enhanced and Baa1 long-term underlying ratings and favorable recent history of market access. The district has demonstrated a consistent ability to access the capital markets over the past five years, having received five bids on the current bond anticipation note (BAN) sale and an equal number of bids on its prior July 2009 note sale. The district also issues revenue anticipation notes (RAN) on an annual basis to fund mismatches between the timing of receipt of state aid revenues and district expenses. Its RAN sales in 2010, 2009 and 2008 received five, six and six bids, respectively. All bids received were submitted by major regional and national financial institutions. Moody's believes the district's underlying credit strength will permit adequate market access to refund the current BAN issue, if necessary, upon its September 2011 maturity. Market access is a key component of this rating, as the district's cash position ($14 million at fiscal year-end 2009) would not support fully repaying the $24.0 million BAN at maturity.

IMPROVED FINANCIAL POSITION MAY COME UNDER PRESSURE FROM NEAR-TERM CHALLENGES RELATED TO STATE AID CUTS; SIGNIFICANT DECLINE IN RESERVE PROJECTED

The district's financial position, which has shown consistent improvement since fiscal 2006, is expected to remain adequate despite near-term pressures related to modest declines in state aid and rising pension costs. These negatives are offset by the district's recent history of conservative fiscal management, growing reserve levels and strong voter support. The district's most recent audited financial statements show a rise in General Fund balance to $7.7 million at fiscal year-end 2009, equal to 6.1% of revenues, up from $5.8 million the prior year. The recent upward movements in General Fund balance bring the district closer to the 18.1% median level for New York state school districts and represent a more than 600% increase in General Fund balance since 2006, when the General Fund stood at $1.2 million, or 1.2% of revenues.

Fiscal year 2009 revenues came in well over budget ($1.1 million) due largely to a $1.1 million increase in BOCES program moneys that more than offset shortfalls in anticipated property and other tax revenues ($141,000) and a $226,000 decrease in federal aid. Positive expenditure variances allowed the district to register nearly $720,000 in cost savings due largely to conservative budgeting in the central services ($831,278), regular instruction ($836,4000), instructional media ($294,300) and employee benefits ($670,743) line items, among others, which more than made up for a $975,000 transfer out of the General Fund to the Capital Fund and a $1.3 million negative variance in programs for children with handicapping conditions.

Management reports that fiscal 2010 (year-end June 30, 2010) closed with an approximately $3.2 million operating surplus that should boost General Fund balance to an projected $10.7 million as a result of positive expenditure variances. Savings were achieved through a change in the district's prescription drug coverage that netted over $1 million in reduced costs, $500,000 in savings on gas & electric due to a milder than expected winter and $1.5 million in expenditure declines resulting from the district's cutoff on spending on nonessential items in February 2010. The district increased its property tax levy in fiscal 2010 for the time since 2008, raising the tax rate by 2% for the 2009-10 fiscal year.

The district's $132,800,000 adopted budget for fiscal 2011 contemplates an anticipated 2.3% ($3.2 million) decline in state aid based on the state's approved 2011 state budget. The district's 2011 budget includes a 2% rise in the property tax levy and conservative cost budgeting characterized by limited increases or cuts in most budget line items with the exception of employee benefits, which are expected to rise by 11%. As a result of the significant cut in state aid and jump in employee benefit costs, the district expects to generate a large structural deficit in fiscal 2011 that includes a $5.2 million fund balance appropriation - its first such appropriation in several years - that the district does not expect to replenish in the coming fiscal year. The appropriation was made to balance out the loss in state revenues and avoid a steeper tax levy increase and would bring the General Fund balance to $5.7 million at 2011 fiscal year-end if realized. Looking ahead to fiscal 2012, district management is contemplating significant expenditure reductions in all areas of the budget if the recent cuts in state aid are not restored.

The district is heavily dependent on state revenues (72.2% in fiscal 2009), which could result in added pressures down the road given the potential for further state aid delays and reductions fiscal 2012 and beyond. However, Moody's believes management's more stringent budgeting practices in recent years and healthier reserves could enable it to maintain a satisfactory financial position going forward. Moody's will continue to monitor the district's fiscal position and reserve levels should additional sources of financial stress become manifest in the near-term.

CHALLENGED TAX BASE WITH LOW WEALTH INDICES

The district's $1.6 billion tax base, which is coterminous with the City of Utica, will continue to be challenged in the near term but may benefit, over time, from the city's ongoing economic redevelopment initiatives. Taxable valuation has remained essentially flat for the past 10 years, as successful tax appeals and property demolitions have offset ongoing development projects, while modest property valuation growth has driven a 6.8% average annual increase in full valuation for the past five years. Local officials are in the process of completing a new master plan for the city to guide land use, infrastructure improvements and economic redevelopment projects, with future growth expected to be driven by reuse of former industrial plants and mixed use development in the city's downtown. Positively, the district's unemployment rate was 7.0% in June 2010 compared to 8.2% unemployment statewide. Employment in the district benefits from the stability afforded by several large healthcare providers operating in Utica including Mohawk Valley Network, St. Elizabeth's Medical Center and Rome Memorial Hospital. The district reports very low wealth levels including a per capita income of $15,246 (65.2% of the state median), a full value per capita of $26,846 that is approximately one-third of the state median and a poverty level of 24.5% compared to 14.6% for New York state.

ABOVE AVERAGE DEBT BURDEN MADE MANAGEABLE BY HIGH LEVEL OF STATE BUILDING AID

The district's sizable debt burden will likely remain manageable given rapid amortization of principal (100% of principal retired within 10 years) and the receipt of substantial state building aid. The district's overall debt burden of 9.8% of full valuation, which includes the overlapping obligations of Oneida County (G.O. rated A1) and the City of Utica, is considerably above the 1.9% New York state median but falls to a far more manageable 5.9% of full valuation when the district's exceptional percentage of state school building aid (98%) is taken into account. The current BAN issue represents a portion of the district's $187 million capital plan approved by district voters in 2008. Projects resulting from the voter-approved 2008 bond resolution are fully funded with state building aid (98%) and an Excel grant (2%). The district anticipates refunding its bond anticipation notes with long-term indebtedness once its six-year capital program is substantially complete in 2015 or 2016. The district has no exposure to variable rate debt and is not party to any derivative agreements.

KEY STATISTICS

2008 Population: 58,040

2010 Full Valuation: $1.6 billion

2010 Full Value Per Capita: $26,846

Overall Debt Burden (Adjusted): 9.8% (5.9%)

Direct Debt Burden: 5.0%

Payout of Principal (10 years): 100%

Fiscal 2009 General Fund Balance: $7.7 million (6.1% of 2009 General Fund Revenues)

1999 Per Capita Income (as % of NY and US): (65.2% and 70.6%)

1999 Median Family Income (as % of NY and US): (65.4% and 67.6%)

Post-sale Parity Debt Outstanding (including bonds and notes): $77.2 million

PRINCIPAL METHODOLOGY

The principal methodology used in rating Utica School District, NY, was Bond Anticipation Notes and Other Short-Term Capital Financings, rating methodology published in May 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

LAST RATING ACTION

The last rating action with respect to the district was on January 15, 2009, when Moody's affirmed the Baa3 rating assigned to Utica City School District's (NY) long-term general obligation debt. The rating was subsequently recalibrated to Baa1 on April 16, 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's 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

Michael D'Arcy
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 ASSIGNS MIG 1 RATING TO UTICA CITY SCHOOL DISTRICT'S (NY) $24 MILLION BOND ANTICIPATION NOTES, SERIES 2010B
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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