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MANAGEABLE LONG-TERM LIABILITIES: The sizable and wealthy tax base
results in a
manageable debt burden, and debt amortization is above
average. Capital needs are moderate and
state pension plans are well
funded.
RATING SENSITIVITIES
POSITIVE FINANCIAL PERFORMANCE: The county's ability to sustain
budgetary balance, build
reserves to adequate levels with largely
recurring measures, and continue reducing short-term
borrowing would be
positive credit considerations.
CREDIT PROFILE
Suffolk is among the wealthiest counties in the state and nation,
benefiting from its proximity to
New York City and a well-educated work
force. The county encompasses the eastern two-thirds of
Long Island
including the Hamptons and Fire Island. The county's population of
approximately
1.5 million is the largest of any county in the state
outside of New York City. Between 2000 and
2010, county population
increased by a total of 5.2%. The total growth rate from 2010 to 2013
was a modest 0.4% and a slow rate of growth is expected to continue into
the near future.
IMPROVING LIQUIDITY; ADEQUATE COVERAGE
The county has historically issued annual cash flow notes in
anticipation of receipt of delinquent
and current property taxes (DTANs
and TANs, respectively). However, due to limited financial
flexibility
and a narrowing cash position in 2012 and 2013 the amount of these
borrowings
increased and revenue anticipation notes (RANs) were issued.
The county issued $625 million in cash flow notes in 2013, growing from
$600 million in 2012 and
$510 million in 2011. Cash flow borrowing in
2013 was a high 19.2% of 2013 budgetary expenses.
Reflecting improved
liquidity, the county's cash flow borrowing in 2014 decreased to $595
million and this RAN issue is a $30 million reduction from the April
2014 issue. The RAN issue for
2016 is projected to decline another $10
million to $45 million. Additionally, in 2015, TANs will be
paid off a
month earlier than in 2014. The trend is positive, but Fitch expects the
county's
reliance on cash flow borrowings to continue for the next
several years.
Cash flow provides adequate coverage of 1.8x on the RANs at maturity in
March 2016. Fitch
believes the county's cash flow projections are
reasonable; actual coverage for 2015 repayment
was slightly better than
projected (1.3x vs. a projection of 1.2x).
IMPROVING FINANCIAL RESULTS IN 2013
On an audited GAAP basis the county reported a general fund balance of
negative $193.8 million
for 2013, a $131.4 million improvement from
year-end 2012. The unrestricted general fund
balance totaled a negative
$243.9 million or negative 11.2% of general fund spending compared to
negative $401.7 million or negative 14.3% of spending at Dec. 31, 2012.
For 2013, sales tax
revenues were up 6.8% from 2012. This increase is
higher than the 3% increase in 2012 and is the
highest growth rate since
2004.
SALES TAX SHORTFALL IN 2014
On a budgetary basis, current estimates project about break-even
operations, for a combined
(general fund and police district) 2014
year-end fund balance of $31.2 million, comparable to $30.6
million at
Dec. 31, 2013. Sales tax revenues for 2014 were budgeted to increase by
2.8% but are
now anticipated to have increased only 1.4% which would
equate to a $19 million shortfall. The
sales tax shortfall was offset by
2014 payroll expenses that were down by $7 million, interest and
tax
revenues that were $2 million higher than projected, and savings of $13
million generated by
the 2014 declaration of fiscal emergency.
2015 ADOPTED OPERATING BUDGET
Due to the projected sales tax shortfall, earlier this year the county
executive declared a fourth
consecutive fiscal emergency, allowing the
county's budget office to embargo up to 10% of
available appropriations,
and is anticipated to generate savings of approximately $20 million. The
$3.4 billion (total operating expenditures and other financing uses)
2015 budget represents a
decrease in spending of less than 1% from the
2014 budget. However, the 2015 budget assumes
sales tax growth of 4.87%
from estimated 2014 sales tax revenues, which Fitch considers
somewhat
aggressive.
Initiatives that balance the 2015 budget include recurring revenues and
savings along with a
lesser reliance on non-recurring revenue items.
Recurring measures include, for the third
consecutive year, a police
district property tax increase.
As in 2014, the largest measure is the amortization of the 2015 pension
payment totaling $59.8
million. Positively, this amount is a decrease
from previous years and about $20 million less than
the county is
permitted to amortize.
The budget does not contemplate the use of funds from the tax
stabilization reserve fund.
However, it includes the transfer of $22.5
million from the assessment stabilization reserve fund
(ASRF); $32.8
million was transferred in 2014. A referendum was approved on the
November
2014 ballot which authorizes the county to borrow from the ASRF
through 2017 to provide tax
relief. All amounts borrowed from the ASRF
will be repaid by the county by 2029, with payments
commencing in 2018.
Fitch believes the use of reserve funds is not ideal, but it provides
the
county with flexibility and a lower cost of funding than bonded debt.
STRONG SOCIOECONOMIC CHARACTERISTICS
The county benefits from a broad, diverse economy and well above-average
economic indicators,
including solid income levels (per capita income in
2013 was 131% of the nation) and high per
capita market value
($171,000). The county's unemployment rate remains lower than the rates
for New York State and the nation. In December 2014 the county's
unemployment rate was 4.6%
compared to 5.7% and 5.4% for the state and
nation, respectively. Year-over-year unemployment
was down from 5.4% in
December 2013, due to a decline in the labor force (1.9%) outpacing a
decline in employment growth (1.1%).
MANAGEABLE LONG-TERM LIABILITIES
The county's debt ratios at $4,099 per capita and 2.4% of market value
are in the moderate range,
with the latter reflecting the wealthy tax
base. Debt service represents a modest 5% of total
government fund
spending.
Debt ratios should remain stable given manageable capital needs and
rapid amortization (72.3% of
principal is retired within 10 years). The
county usually issues debt on a semi-annual basis to
finance its ongoing
capital program. The county plans on issuing approximately $60 million
of
general obligation bonds during the spring of 2015 for various
general capital purposes.
The county participates in well-funded New York State pension plans. As
of March 31, 2014, the
state and local employees' plan and the state and
local police and fire plan had funded ratios of
88% and 89%,
respectively. Using Fitch's more conservative 7% discount rate
assumption the
plans' funding levels would still be sound at an
estimated 84% and 85%, respectively.
County pension payments in 2013 made up a moderate share (4.4%) of
government fund spending.
The county has taken advantage of the ability
granted by the state to amortize most of the increase
in annual pension
payments for 2012 and 2013 over 10 years and for 2014 over 12 years. The
2015 adopted budget reduces the amount of amortization to $60 million
out of a possible $80
million. This amortization option provides some
near-term budget relief but will make future year
budgeting for these
payments more challenging.
The moderate pension liability is somewhat offset by a high unfunded
actuarial accrued liability for
other post-employment benefits (OPEB) at
$5 billion as of Dec. 31, 2013, or 2% of market value.
Carrying costs
for debt service, pension and OPEB equaled a moderate 14.5% of 2013
total
government fund spending, with the county's amortization of part
of the pension payment
somewhat offsetting rapid debt repayment.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this
action was additionally informed by
information from CreditScope, University Financial Associates,
CoreLogic
Case-Shiller Index, IHS Global Insight, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'Rating U.S. Public Finance Short-Term Debt' (Dec. 9, 2013).
Applicable Criteria and Related Research:
Fitch Ratings
Primary Analyst:
Karen Wagner, +1-212-908-0230
Director
Fitch
Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary
Analyst:
Arlene Bohner, +1-212-908-0554
Senior Director
or
Committee
Chairperson:
Karen Krop, +1-212-908-0661
Senior Director
or
Elizabeth
Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com
http://www.reuters.com/article/2015/03/25/ny-fitch-ratings-suffolk-idUSnBw256256a+100+BSW201
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