2008-12-05 00:26:03 -
Fitch Ratings assigns an 'A+' rating to Nassau County, NY's (the county) approximately $65 million general obligation (GO) bonds, series 2008E (the bonds). The bonds are scheduled to sell via negotiated sale on Dec. 11, 2008. Bond proceeds will be used to finance various capital improvement projects, tax certiorari payments and pay judgements and settlements in the county. In addition,
Fitch affirms the 'A+' rating on the county's approximately $537 million in outstanding GO bonds and Nassau Health Care Corporation's (NHCC) approximately $296.2 million outstanding county-guaranteed bonds. The Rating Outlook is Stable.
In addition, Fitch assigns an 'F1+' short-term rating to Nassau County, NY's approximately $132 million GO tax anticipation notes (TANs), 2008 series A and B due Sept. 30, 2009 and Oct. 30, 2009, respectively. The TANs are expected to price competitively on Dec. 11, 2008. Proceeds will be used to provide funds to meet a cash flow deficit otherwise expected to occur during the period that the TANs are outstanding. The notes 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 2008 TAN borrowing increased only slightly by $7 million compared to the $125 million issued in 2007.
The 'A+' rating on the county's outstanding GO bonds reflects the marked improvement in the county's financial condition since its fiscal crisis experienced at the beginning of the decade, resulting from the institutionalization of strong financial management practices and its recent willingness to increase property tax rates by 3.9%. Other positive credit characteristics include a broad and wealthy economic base, high income levels, and moderate direct debt levels with above-average amortization rates. 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. While sales tax revenue continues to demonstrate moderate growth annually, Fitch believes the variance between budgeted revenue assumptions and actual collections remains an ongoing vulnerability.
The 'F1+' rating on the county's TANs reflects strong projected coverage on the repayment dates, 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 2009 cash flows of the county's five major operating funds is strong at 3.19 times (x) in September 2009 and 3.11x in October 2009. Including borrowable liquid resources in excess of $150 million available from tobacco and sewer and storm water funds, coverage levels increase to even stronger levels of 5.1 x and 6.36 x 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 the New York City metropolitan area as well as its own broad employment base and a diverse and wealthy tax base. The county's unemployment rate of 5.2% in September 2008 measured below that of the state (5.6%) and the nation (6.1%) but higher than the 3.9% in September 2007. Wealth levels are well above average; in 2005 per capita money income equaled 135% and 150% 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 2007 with an operating surplus across all major operating funds of approximately $23.8 million of which the county reserved $10 million for 2008 tax refunds. The county's combined fund balance totaled $145 million, or 5.16% of total 2007 expenditures and transfers. The county expects to add $1 million to fund balance at the end of fiscal 2008. The county has revised it budgeted sales tax growth assumption of 2.5% downward to 1.8% to reflect declining sale tax receipts due to the overall national economic decline. The county has proposed not replacing 150 positions and limiting all but essential purchases to offset any shortfall as well as implementing other cost saving measures. While Fitch believes management has been proactive in addressing the shortfall, the reduced 1.8% growth assumption may prove challenging to achieve and could produce another negative variance given the recent trend in sales tax performance.
The county's 2009 budget and 2009-2012 multi-year financial plan (MYP) includes a 3.9% county property tax increase, the first increase in over five consecutive years of no tax increases. The county continues to rely on several cost-saving measures some of which require state and county legislative approval as well as departmental consolidations and enhanced labor contingencies. Sales tax growth is budgeted at .5% over the prior year. 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, achieving labor concessions, and a state-imposed cap on annual growth in Medicaid expenses.
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 $6,470 per capita but a moderate 3.46% of market value given the county's strong property values. Market value per capita remains high at $186,937. The county's 2008-2011 capital improvement plan totals $965.7 million and is expected to be funded primarily through annual county debt issuance. Debt amortization remains a credit strength, with 30% and 64% of principal retired within five and 10 years, respectively.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework'.) At this time, Fitch is deferring its final determination on municipal recalibration. Fitch will continue to monitor market and credit conditions, and plans to revisit the recalibration in the first quarter of 2009.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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
Ann G. Flynn, +1-212-908-9152
Christopher Hessenthaler, +1-212-908-0773
Cindy Stoller, +1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com 
