RPT-Fitch rates DASNY's $1b state sales tax revenue bonds 'AA'; outlook positive

Tue Oct 1, 2013 2:33pm EDT

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NEW YORK, October 01 (Fitch) Fitch Ratings has assigned an 'AA' rating to the 
following Dormitory Authority of the State of New York (DASNY) state sales tax 
revenue bonds:

--$1 billion series 2013A.

The bonds are expected to sell through negotiation the week of Oct. 14, 2013.  
This is the state's first offering of state sales tax revenue bonds.  

The Rating Outlook is Positive, in line with the outlook on the state's general 
obligation (GO) and GO-linked debt. 

SECURITY 

The bonds are secured by financing agreement payments to be made by the State of
New York, subject to legislative appropriation. Payments are derived from the 
yield of one cent of the four-cent statewide sales tax, net of refunds, rising 
to two cents after Local Government Assistance Corporation (LGAC) bonds are 
fully retired, expected on or before in 2025.  

KEY RATING DRIVERS

--STRONG STRUCTURE ELIMINATES RISK OF NON-APPROPRIATION: Bond payments require 
annual state legislative appropriation.  However, in the event of 
non-appropriation the state would be unable to receive sales tax revenue 
deposited in the sales tax revenue bond tax fund, which is expected to total 
$2.9 billion in the current fiscal year. Fitch believes this structural feature 
effectively eliminates the risk of non-appropriation.

--BROAD DEDICATED REVENUE SOURCE: The designated source of payment is 
broad-based and provides generous coverage of debt service.  Although revenues 
dropped in the recession, the sales tax has been a relatively stable revenue 
source over time and recent results are improved. Fitch also notes that although
the sales tax is the intended source of funds for debt service, there is access 
to general fund resources in the extremely unlikely event that sales tax 
revenues are inadequate.

--GENERAL CREDIT QUALITY OF NEW YORK STATE: Due to the strengths noted above, 
the rating on the sales tax revenue bonds is equal to the 'AA' rating assigned 
to New York's GO debt.  New York's GO rating is based on the state's substantial
wealth and resources and broad economy, strong financial planning and reporting 
practices, and moderate liability burden.  The Positive Outlook reflects the 
improved fiscal management practices of recent years that are resulting in 
timelier, more sustainable budget-making.  Notable recurring actions were taken 
to close budget gaps in the downturn, and in the recovery the state has limited 
the growth in spending.   

RATING SENSITIVITIES

The rating on the bonds is sensitive to changes in New York State's GO rating, 
to which it is linked, as well as expected solid coverage to be provided by 
sales tax revenues.

CREDIT PROFILE 

The current bond issue is the first offering under New York State's new state 
sales tax revenue bond financing program.  New York State has relatively little 
GO debt (less than 10% of total net-tax-supported debt) and since 2002 has 
financed the bulk of its capital needs through revenue bonds secured by 25% of 
state personal income tax (PIT) revenues, subject to appropriation. The PIT 
bonds replaced straight appropriation debt as the primary financing mechanism 
for the state.  There is about $27 billion of state PIT debt outstanding, issued
by five authorized issuers. 

Earlier this year, the state passed legislation creating the new state sales tax
revenue bond financing program.  The statutory language is specifically modeled 
on the PIT bond program.  The new program is expected to diversify the state's 
borrowings but not increase overall borrowing.  The state plans to use the sales
tax and PIT bonding programs interchangeably, and intends to finance its capital
needs going forward through these two programs plus the GO credit.

New York also has sales tax-backed bonds outstanding through LGAC.  LGAC was 
created in 1990 as a means of financing $4.7 billion of the state's accrued 
general fund deficit, replacing the annual spring borrowing for local aid 
payments.  LGAC bonds are also backed by one cent of the state's sales tax, 
which is required by statute to be deposited in the local government assistance 
tax fund, subject to appropriation.  LGAC has no remaining bonding 
authorization, and outstanding bonds fully mature in 2025.

The new state sales tax revenue bonds are special obligations of the issuing 
authority, secured by payments to be made by the state pursuant to a financing 
agreement between the issuer and the state acting through the director of the 
budget.  These payments are to be made from amounts statutorily required to be 
deposited into the newly created sales tax revenue bond tax fund: 1% of New York
State's 4% sales tax, net of refunds, at the start of the program, rising to 2% 
once LGAC bonds are fully retired.  The sales tax revenue bond tax fund is held 
separate and apart from all other moneys of the state in the joint custody of 
the Commissioner of Taxation and Finance and the Comptroller of the State.  Debt
service is funded monthly on a 1/5, 1/11 basis, and amounts not required for 
debt service flow to the state's general fund at least monthly.

Use of sales tax revenue bond tax fund receipts requires annual legislative 
appropriation, but if appropriation is not made, the funds (about $2.9 billion 
in the current fiscal year) are unavailable for general fund purposes, except if
needed for GO debt.  Fitch believes this effectively eliminates the risk of 
non-appropriation.

The sales tax is the state's second largest source of tax receipts, representing
about 20% of state tax revenues at $12 billion.  It has been imposed since 1965.
The base of the sales tax is amended regularly, although the rate has been 
changed only four times.  The current rate of 4% has been in place since 1971, 
but for a 0.25% temporary increase to 4.25% from June 2003 to 2005.  The sales 
tax has been a relatively stable revenue source over time.  Receipts have 
demonstrated solid growth following two years of recessionary tax base declines 
in fiscal years 2009 and 2010.  

Although the sales tax is the intended source of funds for debt service, the 
state comptroller is required to transfer monies from the general fund without 
the need for further appropriation if sales tax revenues were to be inadequate 
for debt service, an event that Fitch believes is extremely unlikely.  
Conversely, GO bondholders have access to the sales tax fund monies in the 
similarly unlikely event that they were to be needed for that purpose.  The 
state retains the ability to amend, modify, or repeal the sales tax.U.S. State Government Tax-Supported Rating CriteriaAdditional Disclosure 

Solicitation StatusALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 
here. IN ADDITION, RATING 
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S 
PUBLIC WEBSITE '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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE 
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS 
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED 
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH 
WEBSITE.

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