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Rating Action:

Moody's moves New York State outlook to positive; affirms GO at Aa2

22 Aug 2013

State has $62.1 billion in net tax-supported debt outstanding

NOTE: On March 15, 2016, the press release was corrected as follows: In the paragraph regarding methodologies, the publication date of Moody's Approach to the Moral Obligation Pledge was changed from June 1999 to November 2008. Revised release follows.

New York, August 22, 2013 -- Moody's Investors Service has changed the outlook on New York State to positive, and affirmed the Aa2 rating on New York's $3.5 billion of General Obligation Bonds. Moody's has also affirmed the ratings on all outstanding appropriation-backed and G.O.-related bonds as well as various state intercept programs.

SUMMARY RATING RATIONALE

The positive outlook reflects improvements in the state's economy, governance, financial position and fiscal outlook that, if continued, would allow the state to improve its reserves and draw closer to structural balance.

New York's Aa2 general obligation rating reflects the relative strength and recent resilience of its economy; governance constraints including a history of late budgets and limited executive authority to reduce appropriations; a financial position that has improved but remains below average; a moderate combined debt and pension burden; and sound debt management and frequently updated financial forecasting. The rating incorporates notable improvements in the state's economy, governance, financial position, and budgetary balance over the past three fiscal years, as well as remaining risks, including weakness in the financial services sector, continued revenue volatility, and relatively low fund balance and liquidity positions.

STRENGTHS:

* Broad-based, mature, and wealthy state economy that attracts a highly-educated and global workforce, and has shown above-average resilience during the recovery

* Long track record of closing annual budget gaps, and more recently, with more structurally balanced solutions

* Accumulated rainy day reserves have remained stable for 10 consecutive years, providing cash flow flexibility, although at comparatively low levels

* State pension system is well funded compared to other states and unfunded liability is modest, placing state's fixed costs at the 50-state median relative to total revenues

* Recent reversal of history of political gridlock, reflected in timely budgets, implementation of spending controls and move toward structurally balanced budgets.

CHALLENGES:

* Revenue volatility stemming from the state's dependence on the financial services sector and income taxes, posing risks to budgetary balances, liquidity, and financial stability

* Relatively low fund balances provide minimal protection against revenue volatility

* Above-average state tax-supported debt burden partly reflects a past record of deficit-related bonding

Outlook

The positive outlook reflects improvements in the state's economy governance, financial position and fiscal outlook that, if continued, would allow the state to improve its reserves and draw closer to structural balance.

WHAT COULD MAKE THE RATING GO UP

* Positive GAAP fund balances to improve liquidity and offset risk related to volatile personal income tax collections

* Continued adherence to spending controls

* Continued achievement of timely adoption of budgets

* Further movement toward structurally balanced budgets

WHAT COULD MAKE THE RATING GO DOWN

* Economic downturn resulting in lower revenues and larger budget gaps

* Decline in reserves and liquidity measures reflected in GAAP balances or a return to large payment deferrals to manage cash flow

* Return to reliance on deficit financing or other non-recurring budget solutions to fund current operations

* Depletion of Rainy Day Fund without plans to replenish

* Sharp increase in debt issuance leading to increased debt ratio measures or significant deterioration in pension funding levels

RATING METHODOLOGIES

The principal methodology used in this rating was US States Rating Methodology published in April 2013. An additional methodology used in the appropriation-backed ratings was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December 2011, an additional methodology used in the bonds backed by the moral obligation pledge was Moody's Approach to the Moral Obligation Pledge published in November 2008, and an additional methodology used in the enhanced ratings was State Aid Intercept Programs and Financings: Pre and Post Default published in July 2013. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Marcia Van Wagner
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Emily Raimes
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's moves New York State outlook to positive; affirms GO at Aa2
No Related Data.
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