AFFIRMS Aa3 LONG-TERM G.O. RATING AFFECTING $320 MILLION IN OUTSTANDING DEBT
Rochester (City of) NY
Bond Anticipation Notes, 2011 Series I
Expected Sale Date
Bond Anticipation Note
NEW YORK, Feb 8, 2011 -- Moody's Investors Service has assigned a MIG 1 rating to the City of
Rochester's (NY) $38.7 million Bond Anticipation Notes - 2011 Series I.
Concurrently, Moody's has affirmed the city's Aa3 long-term general obligation
bond rating, affecting $320 million in outstanding long term debt secured by the
city's unlimited property tax pledge.
The MIG 1 rating additionally reflects the city's demonstrated ability to access
the bond market to permanently finance the notes at maturity. The Aa3 rating
reflects the city's maintenance of a satisfactory financial position despite
persistent economic challenges and an above average debt burden. Proceeds will
redeem $29.6 million of outstanding notes and provide $9.3 million of new money
to fund capital projects. Projects included in the current offering are
improvements to school facilities ($14.9 million), water and sewer facilities
($7.2 million), Parking ($4.3 million), as well as street repairs and other
general capital needs ($12.2 million).
"University presence stabilizes the city's tax base
"Ample funds outside the General Fund that can be used for operations.
"State aid reductions for both the City and the School District will
challenge the city's financial position.
DEMONSTRATED MARKET ACCESS
The city is a frequent debt issuer with a strong history of favorable market
access. The city received nine bids on its August 2010 note sale, five bids on
its February 2010 note sale, six bids on its February 2009 note sale, eight bids
on its August 2008 note sale, and six and five bids, respectively, on its
February 2008 and October 2007 note sales. Given this history, Moody's expects
the city will be able to refinance the current notes at their August 19, 2011
SATISFACTORY FINANCIAL POSITION EXPECTED TO REMAIN STABLE DESPITE
Moody's believes that the city has demonstrated conservative
financial management practices that have supported the maintenance of
satisfactory reserve levels in the face of economic weakness. The city
ended fiscal 2010 with a $4.4 million General Fund operating surplus, increasing
General Fund balance to $33.97 million or 7.2% of General Fund revenues. The
operating surplus represents the fifth consecutive year where General Fund
balance increased. While reserves remain narrow, the city has historically
maintained significant reserves outside the General Fund, which are legally
available for General Fund operations. Despite the appropriation of $4.2 million
in fund balance for fiscal 2010 and a revenue shortfall of $6.1 million, driven
mostly by $5.1 million in charges for services, the city was still able to
operate at a surplus. The city offset these revenue declines by conservative
budgeting on various expenditures. Additional liquidity is provided by the
city's Debt Service Fund, which ended fiscal 2010 with ample $57 million, of
which $36 million is available to General Fund operations. The city also
benefits from approximately $21.1 million in unrestricted assets in its Internal
Service Fund, which enhances liquidity and offsets weaker reserve levels in the
General Fund. Financial flexibility is further enhanced by significant annual
funding of capital improvements on a pay-as-you-go basis, with the General Fund
transferring $38 million to the Capital Projects Fund for this purpose in 2010.
Moody's analysis of the city's financial position also factors the
fiscal condition of the Rochester City School District, a component unit of the
city. The school district receives a flat $119.1 million contribution from the
city every year (approximately 21% of district revenues in 2010). The district
ended 2010 with a $17.2 million addition in the district's General Fund balance,
primarily due to midyear budget cuts and not filling vacant positions.
Taken together, city and school district reserves totaled $111.4 million,
equivalent to an adequate 10.9% of combined operating revenues. Inclusion of the
city's substantial Debt Service Fund balance increases available combined
reserves to a satisfactory 14.5% of combined operating revenues. Moody's
believes the city's financial reserves, as well as annual budgetary flexibility
afforded by pay-go capital spending, provide the city satisfactory financial
cushion to weather near-term pressures related to the ongoing economic recession
and anticipated state aid reductions.
The city's fiscal 2011 General Fund budget anticipates a 1.4% decline in
revenues (budget-to-budget), net of the 2010 spin-up receipt which is not
budgeted in 2010. The budget maintains the property tax rate essentially flat at
the 2010 level, although the levy is projected to increase by $4.3
million, driven by expected assessed value growth. The budget assumes a $3.6
million decline in state aid, a $1.3 million decline in fines and forfeitures,
and a $700,000 (0.5%) decline in sales tax. These reductions are offset by a $12
million use of fund balance (which is not expected to be replenished) which is
to be transferred out of the Debt Service Fund and into the General Fund, and
$10 million reduction in pay-go capital expenditures. The school district
budget for fiscal 2011 also includes a larger fund balance appropriation
($25.8 million), which is not expected to be fully replenished, a reduction in
state aid revenues, and maintains the city revenue contribution at $119.1
million. The school budget reduces expenditures by $36.2 million, driven by
health insurance savings, favorable renegotiation of the district's
transportation contract, and the elimination of 200 full time equivalent
positions. Conservative management and maintenance of healthy reserve levels
remain important buffers in the face of economic vulnerabilities, including a
declining population and sales tax receipts which are expected to be challenged
in the near term.
CITY'S TAX BASE REMAINS STABLE WITH PERSISTENTLY ELEVATED UNEMPLOYMENT
Following a period of declining assessed valuation in the early half of this
decade reflecting continued population decline and the loss of
manufacturing jobs, the city's taxable values have stabilized in recent
years, due in large part to increases from revaluations completed every
four years (most recently, a 10.8% increase in 2009). The city's population has
gradually declined over the past 35 years from 295,011 in 1970 to approximately
206,886 in 2008 (30% decrease), reflecting the continued struggle with
manufacturing job losses. Since 2000, Rochester's labor force has
declined approximately 16.2% (approximately 18,185 individuals) reflecting
downsizing by two of the city's larger employers, Eastman Kodak (senior
unsecured rated Caa1/stable outlook) and Xerox (senior unsecured rated
Baa2/positive outlook). Operations have reportedly stabilized at Kodak, which
employed approximately 7,400 in the Rochester area as of the end of 2010 . As an
offset to job losses, the city benefits from a number of stable institutions,
including the University of Rochester (rated Aa3/stable outlook; 8,750 students)
and the Rochester Institute of Technology (rated A1/stable outlook; 13,422
students). In addition, a robust health care sector supports over 23,000 jobs.
Further growth in this sector is expected, given a January 2008 announcement of
a $550 million expansion by the University of Rochester, projected to occur over
a five to ten year period. Ongoing development projects also include
construction of a new headquarters for PAETEC Holding Corporation, which will
move its headquarters downtown; this project is expected to lead to further
revitalization of the area. Additionally, Cody Gate Ventures, a British venture
capital firm, has purchased one of the former Kodak buildings and plans to move
three new technology firms into the area. The project is expected to create 250
new high paying technology jobs and could generate more than $100 million in new
investment. Unemployment in Rochester, at 9.9% in October 2010, remains above
the state, but in line with national levels (8% and 9%, respectively). The local
housing market is relatively stable, given some slowing of sales volume and
modest 2% to 4% increases in home prices, largely reflecting the fact that
Rochester did not experience the significant run-up in values that some
municipalities have seen over the past ten years. Wealth indices are below the
state average and full value per capita is a modest $29.809 (based on New
York State special equalization rate).
ABOVE AVERAGE DEBT BURDEN WITH RAPID DEBT REPAYMENT POLICY; FERRY OBLIGATION
The city's direct and overall debt burdens, which factor bonds and bond
anticipation notes issued on behalf of the Rochester City School District, are
above average at 6.7% and 7.6% of full valuation, respectively. After adjusting
for state school building aid to the district, the city's direct and
overall debt burden is still a high, but manageable, levels of 2.7% and 4.9% of
full valuation, respectively. Moody's notes that a special purpose entity has
been established that may issue debt for school purposes moving forward.
Depending upon the structure and security of these issues, this vehicle may
provide some relief for the city's direct debt burden. Debt payout is aggressive
with 82.3% of principal repaid within ten years. Future significant increases in
the city's direct debt burden, whether driven by debt issuance or tax base
deterioration could impact credit quality. The city has no variable rate debt
and is not party to any derivative agreements.
WHAT COULD MAKE THE RATING GO UP:
"Significant increase in socioeconomic profile of the city.
"Significant decline in the city's debt burden.
WHAT COULD MAKE THE RATING GO DOWN:
"Significant increase in debt burden.
"Significant decline in liquidity, including all funds available for
General Fund operations.
2008 Population (estimated): 206,886 (-5.9% since 2000 census)
2011 Full Valuation: $6.2 billion
2011 Full Value Per Capita: $29,809
1999 Per Capita Income: 67% of state average
1999 Median Family Income: 61% of state average
Unemployment Rate (October 2010): 9.9%
Overall debt burden: 4.9% (adjusted for state school building aid and self
Direct debt burden: 2.7% (adjusted for state school building aid and self
Fiscal 2010 General Fund balance: $33.9 million (7.2% of General Fund revenue)
Fiscal 2010 Operating Funds combined balance: $148,785 million (14.5% of
Combined Revenues of City General Fund, City Debt Service Fund, School District
General Fund, and School District Debt Service Fund)
Outstanding General Obligation Debt: $320 million
The principal methodology used in this rating was Bond Anticipation Notes and
Other Short-Term Capital Financings published in May, 2007.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, public information, and confidential and proprietary
Moody's Analytics 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.
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Public Finance Group
Moody's Investors Service
Jessica A. Lamendola
Public Finance Group
Moody's Investors Service
Senior Credit Officer
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S ASSIGNS MIG 1 TO THE CITY OF ROCHESTER'S (NY) $38.7 MILLION BOND ANTICIPATION NOTES, 2011 SERIES I
Moody's Investors Service
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