NEW YORK--(Business Wire)--
Fitch Ratings affirms Syracuse Industrial Development Agency's (IDA) school
facility revenue bonds (Syracuse City School District Project) series 2008A at
'A'. The Rating Outlook is revised to Stable from Positive.
The 'A' rating reflects the nature of the pledged revenue stream, satisfactory
debt service coverage on all related obligations, and general credit
characteristics of the State of New York. The rating further reflects the
appropriation risk associated with the city and school district although Fitch
believes this risk is minimal as state intercept of revenues is triggered upon
non-appropriation. The revision of the Rating Outlook to Stable from Positive
reflects the macroeconomic issues the State of New York is experiencing.
The bonds are payable from the trustee-held, pro rata set-aside of state aid
remitted to Syracuse City School District (SCSD) during the period from Dec. 1
to March 31 in each fiscal year. Upon appropriation by Syracuse (the city) and
SCSD, the set-aside funds are deposited into the bond fund, and only then are
pledged to the payment of debt service. State aid remitted during the fiscal
2008 December to March collection period provided over 40 times (x) coverage of
maximum annual debt service (MADS) on the series 2008A bonds. In the event
adequate funds to pay debt service are not available by April 1 for any reason
including an event of non-appropriation, the state aid intercept mechanism is
triggered, intercepting any remaining state aid payable to SCSD during such
fiscal year. As the debt service payment date is May 1, state aid intercepted in
the month of April is not expected to be sufficient to pay debt service.
Bondholders benefit from a debt service reserve fund satisfied with a surety by
FSA. Fitch believes that an event of non-appropriation is highly unlikely as
there is no incentive not to appropriate. If set-aside state aid during the
December to March collection period is not appropriated, subsequent state aid is
still intercepted until the debt service reserve is completely replenished.
State aid appropriated to SCSD may be intercepted as pledged payment for several
other obligations including outstanding SCSD general obligation indebtedness
totaling $160.1 million as of fiscal 2008 year-end, charter school payments
totaling $9.9 million in fiscal 2009, and revenue anticipation notes totaling
$65 million in fiscal 2009. Fiscal 2008 state aid provided 2.7x coverage of
aggregate MADS on all obligations that are subject to the intercept mechanism.
The $49.2 million series 2008A bonds were the first installment of $225 million
in bonds authorized under this financing structure. Currently, state building
aid pays roughly 97% of the allowable construction costs on the 2008 debt
offering. SCSD anticipates issuing additional debt under this financing vehicle
in the first quarter of 2011.
State aid intercept ratings, such as this one, are correlated to state bond
ratings and may rise or fall with a change in the state's bond rating, among
other circumstances. New York's 'AA-' GO rating is based on the state's
substantial wealth and resources and broad economy and also recognizes concerns,
now heightened, regarding the outsized role that the financial services industry
plays in the state's economy and revenue system. State net tax-supported debt
levels have been relatively stable as a percentage of personal income and are
expected to remain above average but still in the moderate range.
About 20% of New York State tax revenue comes from the financial services sector
and, as would be expected, the current downturn has been particularly
troublesome for New York. The state took proactive positive steps to identify
and address projected budget gaps over the course of fiscal 2009 as revenue
forecasts were reduced steeply and out-year gap estimates rose sharply. The
enacted budget for fiscal 2010, which began on April 1, 2009, resulted in
minimal growth in state operating funds spending but incorporated a substantial
amount of federal stimulus aid.
New York's economy, whose decline has lagged that of the U.S. in the current
recession, is still performing considerably better than the nation. Non-farm
employment was down 2.4% in June 2009, year-over-year, compared to a 4.2% drop
for the U.S., and state unemployment for the month was 8.7%, 92% of the U.S.
level. The state forecasts non-farm employment down 2.3% in 2009 and 0.3% in
2010. The financial activities sector accounts for about 8% of jobs and more
than 20% of earnings in the state, compared with 6% and 10% for the nation. This
has made New York vulnerable to economic cyclicality, particularly given the
prominence of personal income tax receipts in the state's revenue structure. The
state's personal income per capita is the fourth highest among the states, at
121% of the U.S. average. State personal income growth has been above that of
the nation since 2004. The state forecasts a personal income drop of 2.7% in
2009.
The enacted budget for fiscal 2010 closed gaps estimated at $2.2 billion for
fiscal 2009 and $17.9 billion for fiscal 2010, with these estimates including
program expansions in current law that would have resulted in spending growth of
a high 12.8%. The combined gap was closed through spending control, particularly
in health care and education ($6.5 billion in total, including $1.7 billion from
the elimination of a middle class property tax relief rebate check program); a
temporary personal income tax rate increase that raises the top rate to 8.97%
from 6.85% for tax years 2009 through 2011 that is estimated to generate $3.9
billion, as well as other revenue actions ($5.4 billion in total); $6.1 billion
in federal stimulus monies; and $2 billion in other one-time resources. No
deficit financing was employed.
New York's net tax-supported debt is above average but still in the moderate
range at 5.2% of personal income. Most of New York's debt has been issued by
state public authorities and secured by appropriations; only about 7% is GO.
While this results in a diffuse debt structure, there is strong centralization
and oversight in the budget division and approval by the public authorities
control board is required for many of these bond issues.
Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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 Ratings, New York
James Mann, 212-908-9148
Ann G. Flynn, 212-908-9152
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com
Copyright Business Wire 2009
