2008-06-07 00:40:28 -

- Fitch Ratings has assigned an 'A' rating to the city of Syracuse, New York's (the city) approximately $13.345 million general obligation (GO) public improvement (serial) bonds, series 2008A (school purpose) and an underlying 'BBB' rating to the city's $8.830 million public improvement (serial) bonds series 2008B. The bonds are scheduled to price competitively on June 12, 2008.

Additionally,

Fitch has affirmed the 'BBB' rating on the city's approximately $307 million outstanding GO debt. The Rating Outlook is Stable.

The underlying 'BBB' rating reflects the city's high debt burden, relatively stagnant taxable base, and below-average economic indicators. Positive credit characteristic include the city's stronger than budgeted recent financial results and a notable reduction compared to prior years in budgetary gaps outlined in the city's four-year financial plan (2005/06-2009/10). While the city's above-average reliance on state-aid, limited financial flexibility, and continued structural imbalance at the school district remain a concern, Fitch believes these risks are somewhat mitigated by historically strong financial management practices and a solid level of general fund reserves.

The 'A' rating on the series 2008 A school purpose bonds is based on Fitch's program rating on the New York Credit Enhancement Program, enshrined in section 99b of the state finance law. The law requires the state comptroller to cure certain defaults on local debt issued for school purposes by withholding subsequent state aid payments otherwise due to a school district. The Rating Outlook is Positive.

Located within Onondaga County (GOs rated 'AA+' by Fitch), Syracuse serves as a diverse economic center of upstate and central New York. The 2000 U.S. Census reported a population decline of 14% since 1990, although the losses appear to have slowed since then, as evidenced by slight gains in the labor force in recent years. Much of the job growth is coming from small and midsize companies focusing on business services, telecommunications, and high technology research.

Employment is centered in the higher education, health care, and business service sectors, anchored by Syracuse University and the State University of New York Health Science Center. The city's unemployment rate had declined steadily since its peak in 2004 at 6.2% to 5% in 2007. However, the unemployment rate increased significantly in March 2008 to 6% as compared to 5% in March 2007, exceeding the state and national average for those time periods. Personal income levels remain below state and national averages, while per capita retail sales comfortably exceed them. The city's tax base has been relatively stagnant since 2000, though assessed value has increased in the two most recent years.

Fiscal 2007 results exceeded budget expectations, yielding a $15.3 million operating surplus, achieved primarily from unbudgeted revenue received from DestiNY, an ongoing redevelopment project in the city, and a $5.7 million reduction in budgeted expenditures as well as favorable variances in sales tax receipts. The city's unreserved, undesignated general fund balance at the close of fiscal 2007 totaled $40.9 million, equal to a solid 21.7% of spending and transfers and comfortably above the city's informal target of 5%. A projected overall increase in state-aid, which management expects will be recurring, coupled with expected annual contributions from Syracuse Industrial Development Agency (SIDA) over the next decade have significantly reduced large budgetary gaps outlined in prior years in the city's four-year financial plan.

The city's school district's financial position has remained tenuous following a $1.6 million operating deficit in fiscal 2006 and a $4.2 million operating deficit in fiscal 2007 with a planned $2.5 million draw on fund balance. A budgetary deficit for fiscal 2008 of approximately $6.1 million will be closed with additional property tax revenue derived from growth in the city assessed value (AV) and increasing state aid. School district facilities are expected to benefit from the passage of the Syracuse School Act (Chapter 58 Part A-4 of the Laws of 2006 of the State) (the Act) which authorized the rehabilitation of school facilities within the city at a cost not to exceed $225 million.

The costs will be funded by bonds issued by the Syracuse Industrial Development Agency which issued the first series of bonds authorized under the Act in March of 2008 (rated 'A' by Fitch). The structure includes a prepayment mechanism of debt service and allows for the trigger of a state aid intercept mechanism in the event of non-appropriation by the city and school district. Furthermore, the Act established the Syracuse Joint Schools Construction Board School (JSCB), which will undertake the rehabilitation and renovation of the school facilities within the city. In addition, the Act requires State Comptroller approval of the plan to undertake the rehabilitation and financing of the school facilities and such approval was obtained on Jan. 28, 2008.

Overall debt ratios are moderate at $2,592 per capita and a high 9.21% of full property valuation, reflecting the weak tax base. The combined city and school district five-year capital improvement plan (CIP) has nearly doubled to $801 million in recent years reflecting the inclusion of the school district's multi-year comprehensive facilities improvement program which will benefit from the receipt of additional state support. In fiscal year 2008, the city and the school district are budgeted to receive state aid in the amount of $241.663 million.

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, 212-908-9152
Christopher Hessenthaler, 212-908-0773
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