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MOODY'S DOWNGRADES BROOME COUNTY'S (NY) G.O. RATING TO A2 WITH A NEGATIVE OUTLOOK FROM A1

07 Jul 2011

CONCURRENTLY, A2 RATING WITH NEGATIVE OUTLOOK AFFECTS APPROXIMATELY $90.1 MILLION OF OUTSTANDING GENERAL OBLIGATION BONDS

County
NY

Moody's Rating

ISSUE

RATING

Public Improvement Refunding Serial Bonds, 2011

A2

  Sale Amount

$17,035,000

  Expected Sale Date

07/08/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, Jul 7, 2011 -- Moody's Investors Service has assigned an A2 rating with a negative outlook to Broome County's $17 Million G.O. Public Improvement Refunding Bonds, 2011. The current issue, which is secured by a general obligation unlimited tax pledge, will refund portions of the county's Series 1997 and Series 2002 bond for an estimated net present value savings of 5.33% of refunded principal resulting in approximately $1.3 million in budgetary savings with no extension to the original maturity date. Concurrently, Moody's has downgraded the district's outstanding general obligation rating to A2 with a negative outlook from A1, affecting $90.1 million in party debt.

RATING RATIONALE

The downgrade reflects a trend of financial deterioration that has left the county with minimal cushion to absorb budgetary pressure associated with the county's reliance on sales tax, which has been considerably weakened in recent years. The A2 rating additionally factors the county's sizable tax base with below average wealth indices, limited liquidity and manageable debt burden.

The negative outlook is based on Moody's expectation that the county will be challenged to rebuild satisfactory reserves and liquidity that provides an adequate financial cushion, given its vulnerability to continued weakened sales tax performance, state budget cuts, and the recent passage of a property tax limitation by New York State, effective for the county on January 1, 2012.

STRENGTHS

-Large, diverse tax base

-Manageable debt burden

CHALLENGES

-Weak financial position

-Reliance on economically sensitive revenue

DETAILED CREDIT DISCUSSION

NARROWED FINANCIAL AND CASH POSITION FOLLOWING FIVE YEARS OF DEFICITS

The county's financial position has narrowed substantially following five consecutive General Fund operating deficits in fiscal years 2006 through 2010, reducing fund balance to $6.8 million (a narrow 2.2% of revenues) with virtually no unreserved fund balance, down from $35.7 million (13.2% of revenues) in 2005. Additionally, the county's cash balance was depleted in fiscal 2008 to 0.3% of General Fund revenue and at the end of fiscal 2010, the cash balance was equivalent to -4% of General Fund revenue when the county's tax anticipation notes are netted out. As a result of deterioration in the county's cash position, management issued $20 million in tax anticipation notes, which management expects to retire with a new tax anticipation note sale in December 2011, an indicator that the county is unable to pay off the note with its own cash flows. Mitigating the weak General Fund cash flows, the county has available cash balances in other funds to support the General fund cash needs.

As in most counties across New York State, the economic recession had significantly dampened sales tax performance which resulted in a year-over-year decline of $6.2 million in fiscal 2009. In addition to the reduction in sales tax, the county had also budgeted $5 million in revenue associated with leasing county property for natural gas extraction in fiscal 2009 and 2010 but the revenue was never realized due to a state ban on the hydraulic fracturing process required to extract the gas. Despite a $9 million revenue shortfall, the county ended fiscal 2009 with a $6.1 million draw on general fund balance due to federal stimulus funding via the increased Federal Medical Assistance Percentage (FMAP) and savings on expenditures for fuel. General Fund balance at the end of fiscal 2009 was $8.2 million, or a narrow 2.7% of net revenues. Fiscal 2010 results indicate a $1.3 million draw on General Fund balance, driven by increases in economic assistance and health expenditures. Favorably, operations at the county's nursing home have reportedly improved, reflecting an $11 million infusion of cash through IGT payments in fiscal 2009 and an anticipated infusion of $12.4 million for fiscal 2010 and 2011.

The recommended budget for fiscal 2011 does not appropriate General Fund balance and includes a 5.4% increase to the property tax levy as well as the restoration of a 2% sales tax on clothing. The adopted budget assumes 13.6% growth in sales tax receipts over the fiscal 2010 adopted budget and incorporates over $6 million in savings associated with eliminating 115 full time positions. Future rating reviews will factor management's progress toward restoring structurally balanced operations and replenishment of reserves to levels sufficient to offset the county's reliance on economically sensitive sales tax revenues, which comprised approximately 34.6% of fiscal 2010 operating revenues.

ASSESSED VALUES HAVE REMAINED STABLE DESPITE ECONOMIC DOWNTURN

Broome County, located in New York's southern tier on the Pennsylvania border, benefits from a sizable $10 billion tax base. Assessed valuation increased by nearly 50% in fiscal 2010, reflecting reassessment in the town of Vestal, although it had been flat over the prior five years. Full valuation has shown healthy growth during this period, increasing at an average rate of 7.4% annually reflecting that recent national housing market declines have been relatively muted in upstate communities. The tax base exhibits some taxpayer concentration, with the 10 largest taxpayers comprising 18% of assessed valuation. Wealth indices are below the state average, reflecting the upstate location and the state university (SUNY) presence in the City of Binghamton (G.O. rated A3/negative outlook) with approximately 12,000 students, comprising 6% of the county's population. The county's unemployment rate, which was 8% in April 2011, is above the state rate of 7.7% for this period, although management believes employment will improve in the near term as a result of the planned state university expansion which will increase student capacity to approximately 17,000 students and the announcement that Lockheed Martin will expand its operation in the local plant. Full value per capita is a moderate $51,385.

ABOVE AVERAGE DEBT LEVELS BUT DEBT POSITION EXPECTED TO REMAIN MANAGEABLE

The county's debt is above average, with net direct debt comprising 1.3% of full valuation, although debt levels are expected to remain manageable due to moderate future borrowing plans. The county does not plan to issue additional debt this year but may issue up to $6 million in bonds in May 2012 for public transportation bus replacements which will likely be funded with future state and federal aid. Debt service payments are manageable at 3.7% of the county's operating budget in fiscal 2010 and a principal payout is rapid with 80.5% of outstanding principal paid within 10 years. The county's overall debt increasing to a high 6.8% of full valuation and reflecting overlapping debt, largely from local school districts. The county has no exposure to variable rate debt and is not party to any derivative agreements.

OUTLOOK

The negative outlook reflects the continued financial strain in the county's financial operations, reflected in the need to roll its cash flow notes when due in December, 2011.

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

-Regain structural balance and increase cash and General fund reserves

WHAT COULD MAKE THE RATING GO DOWN

-Inability to regain structural balance and further declines in cash and General Fund reserves

KEY STATISTICS:

2010 Population: 200,600

2010 Full value: $10 billion

Full value per capita: $51,385

Debt burden: 3.6% (adjusted for state school building aid)

Payout of principal: 80.5% in 10 years

Fiscal 2010 General Fund balance: $6.8 million (2.2% of General Fund revenues)

Per capita income: $19,168 (82% and 88.8% of state and US averages respectively)

Median family income: $45,422 (87.9% and 90.8% of state and US averages respectively)

Parity debt outstanding: $90.1 million

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology .

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a 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

Shannon McCue
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


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MOODY'S DOWNGRADES BROOME COUNTY'S (NY) G.O. RATING TO A2 WITH A NEGATIVE OUTLOOK FROM A1
No Related Data.
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