NEW YORK - (Business Wire) Fitch Ratings assigns an 'A+' rating to the Town of Babylon's (Suffolk County, New York) $27.8 million public improvement serial bonds, series 2009. The bonds are scheduled to sell competitively on Oct. 29 with proceeds being used to fund various general government capital projects. At this time, Fitch also affirms the 'A+' rating on approximately $121 million outstanding general obligation (GO) bonds. The Rating Outlook is Stable. The 'A+' rating primarily reflects the town of Babylon's (the town) continued improvement in its financial position as evidenced by large operating fund balances governed by sound financial policies. The rating also considers the town's mature and sizeable tax base, its proximity and access to New York City, below average resident wealth levels, and moderate capital needs with debt levels that are quite manageable. The primary rating driver for the town will be its ability to absorb potential revenue declines over the medium term and still maintain an adequate level of financial flexibility. Fitch believes sluggish-to-declining tax base growth coupled with declining revenues from mortgage tax receipts could exert budgetary pressure on the town's multiple operating funds.
Babylon is located in Suffolk County, approximately 45 miles east of Manhattan. With approximately 214,000 residents, the town is almost completely built out. Benefiting from its proximity to New York City, the composition of Babylon's employment base continues to diversify away from its once concentrated defense-manufacturing base. Development over the years along Route 110, in collaboration with the neighboring Town of Huntington, has yielded a stable electronics sector. Good commuter access to New York City coupled with the stable nature of the town's largest employers is evidenced by unemployment rates that typically measure below the state and national figures. The August 2009 unemployment rate of 8.5% is up significantly versus the prior year, although it compares favorably to the metropolitan statistical area (MSA), the state and the nation. Income levels are slightly below those of wealthy Suffolk County and the state, although wealth indicators rank higher than national levels.
Babylon's financial position has shown substantial improvement since the beginning of the decade. Notwithstanding a nominal deficit in fiscal 2008, the town experienced seven consecutive years of sizeable operating surpluses on a combined basis across all major tax-supported funds. Despite prudently appropriating $6.6 million for capital projects from the town's two garbage district funds, financial results in the majority of the town's operating funds were positive in fiscal 2008. A negative variance in mortgage tax receipts equal to about $1.9 million coupled with a budgeted appropriation of fund balance resulted in a $4.7 million operating deficit in the general fund, leaving the unreserved, undesignated fund balance at a still healthy level equal to 13.4% of spending and transfers out. Across all operating funds, the unreserved, undesignated fund balance was even stronger at nearly 35% of expenditures and net transfers.
Favorably, mortgage tax receipts were conservatively budgeted to decline by $2.3 million from the prior year's budgeted amount, reflecting an overall weakening in housing market activity. Mortgage tax receipts accounted for about 6% of total operating revenue in fiscal 2008. Taxable assessed value declined by almost .3% in fiscal 2009, although the drop in value was somewhat offset by a 13% property tax increase. Officials expect the fiscal year to end with another operating deficit largely driven by an appropriation of $8 million in fund balance from the garbage funds to finance the expansion of the town's landfill. Despite the use of fund balance, Fitch expects operating reserves to stay in line with the town's target of maintaining year end balances in each of its major operating funds equal to a minimum of 15% of annual appropriations.
The town's overall debt levels, including debt of the county, school district and overlapping entities, are moderate on a per capita basis at nearly $2,400 and at slightly less than 2%, low as a percentage of the town's market value. The town's manageable debt burden is supported by rapid debt amortization. Approximately 92% of outstanding principal is retired in 10 years. Babylon's capital needs are limited due to its built out nature of the town. The current offering will fund numerous projects, including $13.5 million for highway road improvements, $5.2 million for recreation needs, and $4.2 million for equipment purchases. The town typically issues $15 million-$20 million of GO debt annually to fund the capital needs and prudently adheres to a goal of retiring more debt than it issues each year.
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Fitch Ratings, New York
Christopher Hessenthaler, +1-212-908-0773
Ann Flynn, +1-212-908-9152
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
