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Fitch Rates Nassau County, NY's Bond Anticipation and Revenue Anticipation Notes | Reuters

Fitch Rates Nassau County, NY's Bond Anticipation and Revenue

Anticipation Notes

Fitch Ratings assigns an 'F1' rating to the following bond anticipation

anticipation notes (RANs) of Nassau County, NY

(the county):

--$115,000,000 BANs, 2014 series A;

notes (BANs) and revenue

--$130,000,000 RANs, 2014 series A;

--$70,000,000 RANs, 2014 series B.

The BANs and RANs are expected to be sold through negotiation on June

12, 2014.

The BANs are being issued to renew, in part, the county's BANs, 2013

and maturing July 1, 2014 issued to finance

restoration of county

series B dated Dec. 11, 2013

various costs related to the remediation and

facilities and infrastructure from Superstorm Sandy damage.

The RANs are being issued in anticipation of receipt by the county of

the county's fiscal year commencing Jan.

net allocable sales taxes for

1, 2014 and ending Dec. 31, 2014.

In addition, Fitch affirms the following ratings:

--Approximately $1.6 billion in outstanding general obligation bonds

at'A';

--Approximately $247 million in outstanding Nassau Health Care guaranteed bonds at 'A';

Corporation (NCHCC) county-

--Approximately $13.1 million in outstanding Nassau Regional Off-Track (NROTBC) revenue bonds series 2005 at 'A-'.

Betting Corporation

The Rating Outlook for the bonds is Negative.

SECURITY

The GO bonds, notes and NCHCC bonds are secured by the county's faith

power, subject to a 2011 state statute limiting

inflation factor (tax legislature.

and credit and taxing

property tax increases to the lesser of 2% or an

cap law). This limit can be overridden annually by a 60% vote of the

county

The NROTBC bonds are backed by the county's covenant under a support

NROTBC to make loans to NROTBC equal to debt service

of the county as appropriated

trustee to

obligations of the county under the support agreement

support agreement is not

agreement with the

on the bonds from legally available funds

for such purpose. The county commits to transfer funds to the

pay debt service not later than 15 days prior to any debt service

payment date. The

are unconditional and irrevocable, and the

subject to cancellation or termination.

KEY RATING DRIVERS

LIMITED FINANCIAL FLEXIBILITY: Positive operations in 2013 have improved

for the fourth consecutive year. However, limited

and high dependence

the county's financial position.

the structural gap

financial flexibility is evidenced by weak reserves

challenge

on economically sensitive sale tax revenue which will continue to

NO RESOLUTION TO PROPERTY TAX REFUNDS: The county continues to struggle

property tax refunds, with the backlog increasing. To date, no

the county is exploring a resolution

to repay

viable plan has been approved, but

with the state.

LABOR COST CERTAINTY: Recently negotiated labor contracts provide

bring cost certainty to the budget. The favorable

including the inability

be funded with unproven new revenue sources.

long-term savings and

position is tempered by resultant cost pressures

to freeze wages through the contract term and higher salary expenses to

SHORT-TERM MARKET RELIANCE; SOUND COVERAGE: Low liquidity and the

on short-term market access for note repayment and

coverage from projected 2014

county's reliance

operations is a key concern. However, note

revenues, borrowables and note proceeds is strong and note par has

declined slightly over the last few years.

STRONG ECONOMIC FUNDAMENTALS: The county maintains a diverse economic population with high income levels.

base and a

MANAGEABLE DEBT BURDEN: The sizable and wealthy tax base supports a

burden with above-average amortization. Capital needs

are moderate.

with above-average amortization. Capital needs are moderate. RATING SENSITIVITIES manageable debt REDUCTION OF STRUCTURAL

RATING SENSITIVITIES

manageable debt

REDUCTION OF STRUCTURAL GAP: Continued reduction in the structural

sustainable funding sources and reduced reliance on

financial pressure and enhance

deficit through

non-recurring revenues would lessen

rating stability.

RESOLUTION TO PROPERTY TAX REFUNDS: A viable resolution to property tax reduces the county's liability would be a credit positive.

refunds that

WEAK LIQUIDITY POSITION: The county's high dependence on cash flow

needs will continue to be a hindrance in

obtaining a higher rating.

borrowing for liquidity

CREDIT PROFILE

The county is located on Long Island, approximately 15 miles east of

approximately 1.3 million has remained

Manhattan. The population of

fairly steady, growing by 1.1% since 2000.

POSITIVE RESULTS IN 2013

The county is expected to end fiscal 2013 (year-end Dec. 31; unaudited)

of $54.7 million or a $48.9 million operating

(general, police

expected results for 2013 on a NIFA presentation basis (which

other things) is a negative $78.3

is a

(negative $68.8 million).

with a budgetary surplus

surplus on a GAAP basis for the five operating funds

county's

headquarters, police district, fire prevention and debt service). The

excludes one-time measures among

million or 2.9% of budgeted major operating fund expenses. This

than in 2012

decrease of 59% from 2009 (negative $190.7 million), but slightly higher

In 2013, revenues and expenses were lower than budgeted by approximately

respectively. Budgeted revenues were short due primarily

offset by $18.5 million in

intervention and pre-school costs, debt service expenses and payroll and

offset by higher police overtime.

2.1% and 4.0%,

to lower state and federal aid but were

higher sales tax revenues. Lower than budgeted expenses in early

fringe benefits were

Sales tax, which makes up 40% of major tax-supported fund revenue,

past four years although revenues are down

to the primary

million in 2012 to a still sizable $96.6 million in 2013.

outperformed budget for the

year-to-date. Positively, the structural deficit related

$116.9

operating funds has been reduced for the fourth consecutive year from

2014 BUDGET INCLUDES SOME QUESTIONABLE COMPONENTS

Fitch believes the 2014 adopted budget includes a number of questionable

which require NIFA or legislative action, including tax certificate refunds.

components, some of

the bonding of approximately $230 million of

The 2014 adopted budget of $2.8 billion ($1.7 billion general fund) is

2013 budget. The budget does not include

without a property

is considered prudent by Fitch given historical performance.

relatively flat from the fiscal

any increased fees and is the fourth consecutive year

tax increase. Budgeted sales tax growth of 4% over the 2013 adopted

budget

Year-to-date sales tax revenues are down 8% due in all likelihood to

quarter. Based on the projected growth

would be

budgetary surplus for year-end including the sales tax

inclement weather in the first

rate of 4% for the remainder of the year, sales tax revenue

a $2.1 million

short by approximately $15 million. Management is currently forecasting

shortfall.

CONTINUING FINANCIAL PRESSURES IN OUT YEARS

The county's 2014-2017 multi-year financial plan projects budget gaps of

$62.8 million in 2016, and $63.5 million in 2017

Gap-closing measures

office consolidation, sale of surplus county property, and state mandate

recently negotiated labor contracts, the county by June 30.

$48.7 million in 2015;

or 1.7%, 2.1% and 2.1% of spending, respectively.

is required to submit a new multi-year plan to NIFA

include revenue from video gaming terminals beginning in 2015, county

reform. In light of the

Fitch remains skeptical about the county's ability to implement

meaningful savings and/or generate

gap-closing measures to produce

offsetting revenues. Some of the measures are of a non-

recurring nature

action by the county legislature, or approval from NIFA.

and may not be realistic given that one or more will require state

legislation,

Fitch recognizes the strides the county has made in decreasing the

budgetary basis. Fitch believes the gaps are

operating funds budget, time of economic recovery.

structural deficit on a

manageable relative to the size of the county's

but the tight level of financial flexibility is particularly concerning

in a

RESTATEMENT OF 2012 AUDIT

A review of the county's 2013 audit by the independent accounting firm

expenses going back to 2004 that were not recorded

there will be a GAAP impact.

million (1.2% of general fund spending) from $81.8 million (3.7%). Total

restated to reflect an $87 million reduction in

reduces already

return to adequate GAAP reserve position.

uncovered pension

properly. While there is no budget impact,

The fiscal 2012 general fund ending balance will be restated to $28

government funds will be

fund balance. This is troubling to Fitch given that it

county's

weak fund balance and reserve levels and extends the timing of the

LABOR COST CERTAINTY; REVENUE RISK

NIFA approved labor settlements in early May with the county's three

ending a three-year wage freeze. Fitch views

2017, bring cost

police unions and the CSEA,

this positively, as the agreements, which run through

certainty to the budget process and minimizes litigation risk.

Unions have given up wage increases for 2013, reducing the county's

to $101 million from $232 million.

care

that the county submit a revised four-year plan for

new agreements, which

potential retroactive liability

Additionally, the agreements include contributions to health

insurance and pensions by all new employees and work rule changes. NIFA

has mandated

approval by June 30 to address the cost of the

NIFA has estimated at $130 million over the term of the contracts.

The county plans to cover the costs through new and unproven revenue

projects revenues from speed cameras in school

cameras were approved

million annually. Other revenue sources include higher fees for county

beaches, additional assessment fees and

sources. The county

districts as the largest new revenue source. The

by the state legislature and are expected to generate $25 million to $30

facilities such as parks and

increased traffic and parking fees.

NIFA RELATIONSHIP IMPROVING

Fitch believes NIFA's oversight has had some positive effects on the

such as instilling increased budgeting

relationship with

cooperatively in lifting the wage freeze and negotiating new labor

county's financial operations,

discipline and imposing the wage freeze. Recently, the

county management has improved as evidenced by working jointly and

contracts.

Fitch considers the county's revenue estimates to pay the cost of the

aggressive. However, Fitch takes comfort that

2017 on settled

power to assure budgetary balance. Fitch believes NIFA will not

year plan, due June 30, unless it

new contracts as somewhat

despite losing its wage freeze power through fiscal

veto

approve the county's new multi-

contracts, NIFA provides an added layer of oversight and has line-item

believes it is viable.

COURTS REJECT COUNTY'S POSITION ON PROPERTY TAX REFUNDS

The state courts have rejected the county's attempt to end the practice

the property tax refunds for the school, town

estimates that the

million or 2.1% of annual spending.

whereby the county pays

and special district portions of the tax. The county

$60

amount of its liability for paying the refunds would be approximately

Fitch believes the county could manage the $60 million but is concerned

to fund the accumulated tax liability which

resolution to this

creating an obstruction in its path towards overall fiscal

county is exploring alternative

with the county's ability

totaled $325 million at the end of 2013. Without a

refunds,

issue the county will continue to struggle to repay property tax

balance and liquidity improvement. The

solutions with the state to reduce this liability.

RELIANCE ON SHORT-TERM BORROWING

The county generally issues short-term RANs and tax anticipation notes

and November/December of each fiscal period.

and property tax

(TANs) around May/June

Proceeds fund operations in anticipation of sales

notes.

receipts and maintenance of cash balances sufficient to repay maturing

Note par has declined slightly over the past few years. Note borrowing

million or a somewhat elevated 16% of operating

timing differences with

(14.1% of receipts) and note par for 2014 is expected to decline further

receipts).

in 2012 equaled $476

fund receipts ($20 million was to account for

respect to Superstorm Sandy). For 2013, borrowings totaled $433 million

to $400 million (13.2% of

Fitch remains concerned about the county's dependence on short-term

the borrowings overlap each other requiring

borrowing, particularly as

additional issuance to repay outstanding notes.

SOUND NOTE-REPAYMENT COVERAGE

The county's cash flows along with proceeds of outstanding notes

coverage for notes with funds for their

maturity. The

($70 million. Coverage is sound at 4x in March and 3.8x in April.

balances in non-major funds, coverage

TANs ($225

coverage of 3.4x and 3.7x when borrowable resources are

generally provide substantial

2015

repayment fully set aside comfortably in advance of

current RAN issues mature on March 16, 2015 ($130 million) and April 15,

million) issued in Dec. 2013 and due in Aug. and Sept. 2014, have

considered.

projected

With consideration of borrowable

increases to 4.6x and 5.6x in March and April, respectively.

STRONG SOCIOECONOMIC CHARACTERISTICS

The county benefits from a broad, diverse economy and well-above-average

including solid income levels with 2012 per capita

and 182%, respectively, of

economic indicators,

income and medium household income at 152%

the U.S.

The county's unemployment rate remains lower than the rates for New York

For March 2014, the county's unemployment rate was

state and nation, respectively.

numbers were

and national growth rates.

State and the nation.

5.2% compared to 7.3% and 6.8% for the

From March 2013 to March 2014, employment and labor force

flat, posting 1.0% and 0% increases, respectively, slightly lower than

both state

INCREASING BUT MANAGEABLE DEBT LEVELS

The county's debt ratios are increasing but still manageable in relation

to its wealthy tax base;

market value per capita is high at $152,000

totals an

strong tax base. However, these statistics are likely somewhat

issued by school districts (not

despite recent market value declines. Overall debt

above-average $4,284 per capita but a more moderate 2.7% of market value

available).

given the

understated as they exclude debt

Debt ratios should remain fairly stable given manageable capital needs

amortization with 67% (including debt issued by the

above-average debt

and above-average

NIFA) retired in 10 years, contributing to the

service burden.

WELL-FUNDED STATE PENSION PLANS

The county participates in well-funded New York State pension plans. At

and local employees' plan and the state and

88%,

funding levels would still be sound at an

March 31, 2013, the state

local police and fire plan had funded ratios of 87% and

respectively. Using Fitch's more conservative 7% discount rate

assumption, the plans'

estimated 82% and 83%, respectively.

County pension payments in 2012 made up a moderate share (4.8%) of

taken advantage of the ability granted by the

pension payments for

option provides some near-term budget relief but will make payments more challenging.

spending. The county has

state to amortize most of the increase in annual

2012 and 2013 over 10 years and for 2014 over 12 years. This

amortization

future year budgeting for these

The moderate pension liability is somewhat offset by a high unfunded

other post-employment benefits (OPEB) at

Fitch expects

on a pay-go basis.

actuarial accrued liability for

$4.8 billion as of Dec. 31, 2012 or 2.5% of market value.

liability

this amount to increase as the county plans to continue to fund its OPEB

Carrying costs for debt service, pension and OPEB pay-go equaled a

total governmental fund spending, with the

somewhat offsetting

manageable 21.6% of 2012

county's amortization of part of the pension payment

rapid debt repayment.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's

action was additionally informed by

CoreLogic

Tax-Supported Rating Criteria, this

information from Creditscope, University Financial Associates,

Realtors.

Case-ShillerIndex, IHS Global Insight, and National Association of

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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