Jan 29 - Fitch Ratings has affirmed its 'AAA' rating on the following town
of Islip, New York (the town) securities:
--$57,440,000 public improvement general obligation (GO) bonds, series 2000,
2004, 2005, 2006, 2007, and 2008.
The Rating Outlook is Stable.
The town has pledged its full faith and credit and unlimited taxing power for
debt service on outstanding GO bonds. This pledge is subject to the 2011 state
statute limiting property tax increases to the lesser of 2% or an inflation
factor (the tax cap law). This limit can be overridden annually by a 60% vote of
the county legislature. No exemption is made under the tax cap law for debt
service on outstanding GO debt; however, the constitutionality of this provision
has not been tested.
STRONG RESERVES; STRUCTURAL IMBALANCE: The town has notably high reserve levels;
however, ongoing structural imbalance has led to moderate reserve drawdowns.
PROACTIVE BUDGETARY MANAGEMENT: The town consistently outperforms its budget due
to conservative budgeting of revenues and prudent, proactive cost containment.
ABOVE-AVERAGE ECONOMIC INDICATORS: The town's wealth indicators are above
average and its unemployment rate is below the state average.
MODERATE LONG-TERM OBLIGATIONS: The town's debt profile is characterized by a
moderate amount of rapidly amortizing debt, as well as above average carrying
costs and some deferral of expenses associated with long-term obligations.
WHAT COULD TRIGGER A RATING ACTION
CONTINUED STRUCTURAL IMBALANCE: Continued structural imbalance may pressure
reserve levels and the town's future budgets, which could create pressure on the
town's highest quality rating.
The town of Islip is located on the south shore of Long Island in Suffolk County
(GO 'A+', Outlook Negative by Fitch), approximately 45 miles east of New York
City. The town had 335,000 residents at the 2010 Census, up a modest 4% over the
STRUCTURAL IMBALANCE AND STRONG RESERVES
The town has experienced at least three years of structural imbalance across
operating funds (general, highway, and town outside village), reducing total
fund balance by 26% since 2009 and leaving unrestricted operating fund balance
at $56.2 million or 52.4% of spending at year-end 2011. Fitch notes that the
town's fund balances remain healthy and that draw downs on reserves were
planned; however, continued structural imbalance would result in diminished
financial flexibility and downward rating pressure.
Cost containment efforts include the elimination of the department of human
services and realized savings from 37 layoffs at the end of 2009, as well as
requiring new town employees to pay for a portion of their health care benefits.
Non-recurring measures in the 2013 budget include the sale of land ($7 million
or 6.3% of operational spending) and the use of OPEB reserves to fund the town's
2011 financial results came in under budget with a smaller-than-budgeted use of
fund balance of $8.6 million or 10.8% of spending. The town projects ending 2012
with approximately $25 million to $30 million in total operating fund balance
(23% to 27% of 2011 spending); this significant draw-down is due to one-time
expenses associated with Hurricane Sandy, which are largely reimbursable. The
town anticipates that approximately $12 million of the $13 million in clean-up
expenses will be reimbursed by FEMA or the state and may book a $4 million
expedited reimbursement in fiscal 2012, depending on the timing of receipt.
Prior to Hurricane Sandy, the town reports that expenditures were tracking under
budget, notably from lower-than-budget healthcare spending growth. Fitch
approximates total structural fund balance use, excluding the effect of the
storm, of $15 million to $20 million (14% to 18% of spending) in 2012 and would
view unfavorably significantly greater negative audited results.
The town's board has shown a willingness to raise revenue, increasing the
property tax rate by 28% with a tax levy cap override for its 2013 budget. This
increase comes after the town held flat its tax rate for 16 years. The increase
will generate an additional $10.6 million in 2013. The town has also increased
recreational fees by 7% or $425,000. Fitch notes positively that these tax
increases suggest progress toward restoring structural balance, as the town has
budgeted only $4.5 million in use of operating fund balances in 2013, down
notably from $23 million in its 2012 budget.
ABOVE-AVERAGE ECONOMIC INDICATORS
The town's wealth indicators are high with median household income at 160% of
U.S. The town's unemployment rate was 7.7% in October 2012, below the state
(8.3%) and above the national (7.5%) rates. Assessed valuation has declined only
marginally from its pre-recession peak in 2009 (-0.5%), although overall market
value is down by 20% over the same time period.
Town residents benefit from access to the New York City and Long Island labor
markets as well as local employment opportunities. Notable town employers
include Good Samaritan and Southside hospitals, NBTY (vitamin manufacturer and
wholesaler), and Computer Associates International (software), each employing
between 2,500 and 3,500 in 2012.
The town is largely built-out, limiting assessed valuation development
opportunities. Estimates of local damage from Hurricane Sandy exceed $30
million, representing less than 0.1% of market value, which Fitch believes is
unlikely to significantly affect assessed valuation and subsequent year
MODERATE DEBT BURDEN
The town's overall debt burden, most of which is for overlapping school
districts and the county, is moderate at $3,458 per capita or 3.2% of market
value. Debt service expense in 2011 was an above average 14% of operating fund
spending in 2011, reflective of the rapid amortization rate of 83% in 10 years.
The town has not yet adopted a 2013 capital budget but management anticipates
continued annual bonding of a moderate $15 million to $17 million annually,
which Fitch believes should be easily managed.
The town participates in a state-run cost-sharing defined benefit pension plan
which is well funded under the aggregate cost valuation method. The town's 2011
pension payment was $5.1 million or a manageable 5% of 2011 operating fund
spending; however, due to the system investments' underperformance through the
recent economic trough, annual pension costs are expected to increase. The town
is also deferring the maximum allowable portion of its annual contribution to
the state pension system ($3.2 million in 2013), providing near-term budget
relief but making future year budgeting for payments more challenging. The town
plans to continue to take advantage of this option as the state comptroller
makes it available.
The town's payment for OPEB in 2011 was $8.3 million or 7.5% of operating funds
spending. The town has drawn down on its OPEB reserve since 2007, nearly
exhausting this source from a once healthy $20 million, which will add to future
budgetary pressure. The town's OPEB unfunded actuarially accrued liability is
$222 million or 0.6% of market value.
The town's overall carrying costs for debt service, pension and OPEB pay-go was
a significant 27% of operating fund spending in 2011.