NEW YORK - (Business Wire) Fitch Ratings assigns an 'AAA' rating to the following Westchester County, NY's general obligation (GO) bonds: --$130.2 million general obligation serial bonds, 2010 series B;
--$20.8 million general obligation bonds, 2010 series C-1;
--$22.2 million general obligation bonds, 2010 series C-2.
The bonds are expected to sell competitively on Feb. 10, 2010 with proceeds being used to refund an outstanding note and finance numerous capital projects for the county. The 2010 series C-2 bonds may be issued as taxable Build America Bonds depending on market conditions at the time of pricing.
In addition, Fitch affirms the following:
--$672 million in outstanding Westchester County GO bonds at 'AAA'.
The Rating Outlook is Stable.
RATING RATIONALE:
--Westchester County maintains a diverse economic base and benefits from an exceptionally wealthy tax base and population.
--Financial management has been strong historically, with a demonstrated willingness to raise recurring revenues, budget conservatively, and maintain sizeable reserves.
--Debt levels are modest given the county's wealthy tax base, and future capital needs appear manageable.
--The county's financial exposure to the Westchester Medical Center is now somewhat more limited with the 2009 execution of a cooperation agreement.
RATING DRIVERS:
--Stability in the current rating will depend on the county's ability to adequately absorb additional erosion in non-ad valorem tax revenue and the likelihood of reductions in federal and state aid that could pressure the county's financial position over the near-term.
--Fitch expects the cooperation agreement with the Medical Center to remain intact with no additional changes that would negatively affect the county's financial position, despite forecast revenue declines for the Medical Center in fiscal 2010.
SECURITY:
The bonds are secured by the county's full faith and credit and unlimited taxing power.
CREDIT SUMMARY:
Westchester County, located immediately north of New York City, is one of the nation's most affluent counties. The county's wealthy tax base benefits from the strong regional economy, and strong resident income levels rank well above state and national averages. While unemployment has grown amid the current economic downturn, the county's December 2009 unemployment rate of 6.9% compares favorably to the regional, state and national figures. The county's largest employers are reportedly stable, and education and health service industries coupled with finance, insurance, and real estate sectors comprise nearly one-third of total earnings and employment. Government-related employment accounts for an additional 12% of the total. Annual declines in assessed valuation (AV) of 2.5% in 2008 and 2009, as well as an 11% drop in third quarter 2009 single family home median sales prices compared to third quarter 2008 indicates some weakening in the county's housing market. However, home foreclosures declined considerably in 2009, and property tax rates were prudently raised by 3.7% and 2.9% in fiscal years 2009 and 2010, respectively, to offset the declines in AV.
Similar to all New York counties, Westchester continues to contend with a heavy mandated cost burden, including Medicaid, health insurance, and pension payments. However, the state's assumption of the cost of Medicaid requirements that exceed annual growth of 3% somewhat limits the county's exposure. Following a nominal operating deficit of nearly $2.4 million in fiscal 2008 (equal to less than 0.5% of spending), unaudited, preliminary results for fiscal 2009 indicate a healthy general fund surplus of approximately $9 million. Estimated declines of 12.5% and 30% in sales and mortgage tax revenues for fiscal 2009 compared to 2008 collections were offset by eliminating a large portion of discretionary spending, implementing a hiring freeze, and reducing equipment and supply purchases. Audited results for fiscal 2008 show the unreserved general fund balance equal to a healthy 9.8% of spending and transfers out.
The fiscal 2010 budget assumes sales and mortgage tax revenues will grow by 3.3% and 25%, respectively, which Fitch believes is aggressive given the recent negative trend in non-ad valorem revenues coupled with ongoing economic pressures. The fiscal 2010 budget also reflects a recent legislative amendment to the 2008 Cooperation Agreement (the agreement) adopted by the County and the Westchester County Health Care Corporation (WCHCC). The amendment alters the amortization schedule of the credit support provided by the county, which will essentially provide $7 million to WCHCC that will be used for capital projects. While the amendment has a relatively limited financial impact on the county, Fitch believes the change in the agreement after just one year could prompt additional alterations, particularly given the likelihood of reduced state funding for healthcare in fiscal 2010. Fitch remains concerned that further alterations to the agreement could compel the county's financial support to WCHCC.
Debt levels are manageable in relation to the county's wealthy tax base; market value per capita is quite high at $198,300. Overall debt totals nearly $4,400 per capita, but a modest 2.25% of market value. Debt amortization is rapid with 76% of principal retired in 10 years. The county has a thorough, charter-mandated five-year capital planning process. Proposed capital spending for fiscal years 2010-2014 totals $5.1 billion, with slightly more than half dedicated to self-supporting water and sewer projects. Approximately $2.5 billion has been appropriated to date, of which $1.7 billion has already been debt-financed.
These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports:
--'Tax-Supported Rating Criteria', dated Dec. 21, 2009;
--'U.S. Local Tax-Supported Rating Criteria', Dec. 21, 2009.
Considerations for Taxable/Build America Bonds Investors
The following sector credit profile is provided as background for investors new to the municipal market.
Local Government General Obligation Bonds:
The unlimited taxing power of most local government general obligation pledges is the broadest security a U.S. local government can provide to the repayment of its long-term borrowing, and therefore is the best indicator of its overall credit quality. The average local government general obligation rating is 'AA-' with approximately 56% rated at or above 'AA-' and 7% rated 'BBB+' or below. The relatively high ratings reflect local governments' inherent strengths: the authority to levy property taxes, nonpayment of which can result in property foreclosures; additional taxing power that can include sales, utility, and income taxes; and essentiality of and lack of competition for services provided by local governments. Those with low investment-grade or below-investment-grade ratings generally have a combination of a limited or highly volatile economic base, high levels of long-term liabilities including debt and post-employment benefits, and/or unusually limited financial flexibility.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Fitch Ratings, New York
Christopher Hessenthaler, 212-908-0773
Ann Flynn, 212-908-9152
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com
