NEW YORK - (Business Wire) Fitch Ratings assigns 'A+' ratings to Nassau County, NY's (the county) approximately $90 million general obligation (GO) 2009 series H and $40 million GO bonds 2009 series I which may be sold as Build America Bonds (the bonds). The bonds are scheduled to sell via competitive sale on Dec. 3, 2009. Fitch also affirms the 'A+' rating on the county's approximately $820 million in outstanding GO bonds and the underlying 'A+' rating on Nassau Health Care Corporation's (NHCC) approximately $261.5 million outstanding county-guaranteed bonds. The Rating Outlook is Stable. In addition, Fitch assigns an 'F1+' short term rating to the county's $150 million GO tax anticipation notes (TANs), series 2009 A and B due Sept. 15, 2010 and Oct. 15, 2010, respectively. The TANs are also expected to sell via competitive sale on Dec. 3, 2009, and proceeds of the TANs will be used to provide funds to meet a cash flow deficit during the period that the TANs are outstanding. The TANs are general obligations of the county, for the payment of which the county has pledged its faith and credit, and any and all county revenue sources not otherwise legally committed. County sales tax revenues are 42.2% of total revenue of the county's major operating revenues with real property taxes constituting the second largest source of revenue at 31.3% of total revenue. The amount of the 2009 TAN borrowing increased by $18 million compared to the $132 million issued in December 2008.
The 'A+' rating on the county's outstanding GO bonds reflects the county's strong financial management practices as well as the broad and wealthy economic base, high income levels, and moderate direct debt levels with above-average amortization rates. Management's willingness to increase property tax rates by 3.9% in 2009 provided additional financial stability. Credit concerns center on a high fixed-cost burden, borne by all counties in the state financial exposure related to the NHCC, and a consistent trend of over-budgeting sales tax receipts, which is the county's largest revenue source. Sales tax revenue has declined 8.3% year to date in fiscal 2009 compared to the same period in fiscal 2008, excluding the minimal impact to date of a new energy tax. While the county has revised its 2009 budgeted sales tax revenue growth assumption of 0.5% to a decline of 6% for the year, Fitch believes the variance between budgeted revenue assumptions and actual collections remains a vulnerability in light of the continued uncertain economic climate.
The 'F1+' rating on the county's TANs reflects adequate projected coverage on the repayment date, satisfactory legal protections for noteholders, significant levels of borrowable funds, and management's demonstrated ability to respond quickly to budget shortfalls and unexpected expenditure constraints. Projected coverage on both repayment dates based on the combined projected 2010 cash flows of the county's five major operating funds is adequate at 3.05 times (x) in September 2010 and 2.72x in October 2010. Including borrowable liquid resources of between $130 and $140 million available from sewer and storm water funds, coverage levels increase to stronger levels of 4.69x and 5.03x in September and October, respectively.
Nassau County's 2007 estimated population of 1.3 million residents has remained relatively unchanged since the beginning of the current decade. The county's economy benefits from its proximity to New York City as well as its own broad employment base and a diverse and wealthy tax base. The county's unemployment rate of 7.2% in September 2009 measured below that of the state (8.8%) and the nation (9.5%). Wealth levels are well above average; in 2007 per capita money income equaled 136% and 163% of the state and national levels, respectively. The county is home to 13 hospitals, including North Shore-Long Island Jewish Health System, the third largest non-profit secular health system in the country, employing over 31,000, and the Winthrop S. Nassau University Health System.
The county ended fiscal 2008 with an operating surplus across all major operating funds of approximately $2.1 million. The county's combined fund balance totaled $124 million, or 4.3% of total 2008 expenditures and transfers, down from $145 million or 5.16% in fiscal 2007.
The county projects an operating surplus of $13.2 million to its major operating funds balance at the end of fiscal 2009, attributable to approximately $80.5 million in expenditure savings resulting from negotiated labor savings and bonded termination payments, $45 million from FMAP stimulus funds and other cost saving and revenue measure. The county's sales tax revenues are projected to decline by an estimated $94 million compared to actual 2008 results. The sales tax decline has been partially offset by a newly implemented energy tax estimated to bring in $18 million in 2009. In addition, the county has built in a contingency of $10 million which would cover an additional fall in sales tax receipts to 7.5%.
The county's 2009 budget and 2009-2012 multi-year financial plan (MYP) included a 3.9% county property tax increase, the first property tax increase in over five years. Fitch notes that the county has been successful in closing the forecasted budget gaps in each MYP submitted since fiscal 2002, primarily through much improved financial management, labor concessions, and a state-imposed cap on annual growth in Medicaid expenses. While Fitch believes management has been proactive in addressing the most recent shortfall, the assumption of only a 6% decline in sales tax revenue may prove aggressive and result in another negative variance given the recent trend in sales tax performance.
The county's 2010 budget increased by less than 1% compared to the 2009 budget and does not include a property tax increase. The budget assumes a 1.75% growth in sales tax revenue which Fitch believes is aggressive and remains a vulnerability to county revenues. In addition, the budget includes an additional $45 million in federal stimulus funds and recurring revenues from the recently approved energy tax and red light cameras. An increase in the local portion of the sales tax on cigarettes projected to generate $16 million remains subject to state legislative approval. The county expects to continue to contain its expenditures with minimal backfilling of positions, additional departmental consolidations and stringent procurement oversight.
The county's debt burden, including the outstanding debt of the Nassau County Interim Finance Authority (NIFA) and the county's underlying municipalities and school districts, is high at $6,190 per capita but a moderate 3.12% of market value given the county's strong property values. Market value per capita remains high at $198,143. The county's 2009-2012 capital improvement plan totals $920 million and is expected to be funded primarily through annual county debt issuance. Debt amortization equals 32% and 65% of principal retired within five and 10 years, respectively.
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. For additional information on these ratings, see 'U.S. Local Government General Obligation Rating Guidelines', dated March 22, 2007 and available on the Fitch web site at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings, New York
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
Ann G. Flynn, +1-212-908-9152
Christopher Hessenthaler, +1-212-908-0568
