Fitch Rates Suffolk County, NY's GO Bonds 'A' / Tax

Anticipation Notes 'F1'; Outlook Stable | Reuters

Fitch Rates Suffolk County, NY's GO Bonds 'A' / Tax Anticipation Notes 'F1'; Outlook Stable
Fitch Ratings assigns the following ratings to Suffolk County, NY (the county) bonds and notes:
--$107,320,000 refunding serial bonds - 2015 series C 'A';
--$51,385,000 public improvement serial bonds - 2015 series B 'A';
--$100,000,000 tax anticipation notes (TANs) - 2015 (series I) 'F1'.
The Rating Outlook on the bonds is Stable.
The bonds and notes are expected to be sold through competitive sale on Oct. 14.
The series C bonds are being issued to refund portions of outstanding 2005 refunding series, series
2007A and series 2008B bonds for debt service savings. The series B bonds will fund various capital
projects in the county. The TANS are being issued to provide cash flow in anticipation of collections
of taxes on assessments levied, or to be levied by the county for 2015 or any of the three preceding
years.
SECURITY
The bonds and notes are general obligations of the county with a pledge of its faith and credit and ad
valorem tax, 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.
KEY RATING DRIVERS
CHALLENGED FINANCIAL PROFILE: The county's financial profile will continue to be challenged
by a large negative general fund reserve position (GAAP basis) due in part to persistent operating
deficits and revenue volatility caused by a high dependence on economically sensitive sales tax
receipts.
IMPROVING LIQUIDITY: County liquidity has improved with the 2015 RAN issue representing a $30
million (35%) decrease from the 2014 issue; an additional $10 million decrease is projected in 2016.
NARROW COVERAGE OF NOTE REPAYMENT: Projected coverage by revenues expected to be
received by the 2016 TAN repayment date is narrow.
STRONG ECONOMIC PROFILE: The county benefits from a broad and wealthy economy and tax
base characterized by below-average unemployment rates and high wealth levels.
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
FINANCIAL PERFORMANCE: The county has been reducing its reliance on one-shots in recent
years. Reversal of this trend, especially in a positive economic environment, would be considered a
credit negative by Fitch and would lead to a downgrade.
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 2014 was a
modest 0.5% and a slow rate of growth is expected to continue into at least the near future.
WEAKER FINANCIAL PERFORMANCE IN 2014
On an audited GAAP basis for 2014 (year-end Dec. 31) the county reported a combined general fund
and police district deficit after transfers of $19.2 million (negative 0.83% of spending) compared to a
surplus of $128.5 million(4.7% of spending) in 2013.
Sales tax revenues for 2014 were budgeted to increase by 2.8% but the growth rate was slower than
anticipated at 1.4%, resulting in a $19 million shortfall. The sales tax shortfall was offset by lower
than expected employee expenses and savings of $13 million generated by the 2014 declaration of a
fiscal emergency.
The audited GAAP combined unrestricted fund balance decreased to a negative $315.2 million
(negative 11.8% of spending) from negative $303.3 million (negative 11.1% of spending) in 2013.
USE OF RESERVES IN 2015 BUDGET
The 2015 budget contains recurring revenues and savings including the third consecutive police
district property tax increase. Although less reliant on one-off transactions, the budget does rely on
a $59.8 million pension amortization and the use of $22.5 million from the assessment stabilization
reserve fund (ASRF). The pension deferral amount is a decrease from previous years and about $20
million less than the county is permitted to amortize.
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 2029, with payments commencing in 2018.
The ASRF provides funding to the county's sewer funds for stabilization of sewer rates and fees in
addition to infrastructure and capital improvements within the sewer districts. Funding from 1/4
percent of the county's sales tax revenues are deposited in the county water protection fund with
25% transferred to the ASRF.
The 2015 budget assumes sales tax growth of 2.35% (adjusted down from 4.87%) from actual 2014
sales tax revenues. As of Sept. 12, 2015, the county has received the sixteenth of twenty-seven sales
tax distributions to be received in 2015. To meet estimated sales tax projections, a 4.7% sales tax
growth would be required for the remainder of 2015, which Fitch considers optimistic. Using that
assumption, the county is projecting a combined general fund and police district budget surplus of

$5.5 million.
2016 RECOMMENDED OPERATING BUDGET
The county executive submitted the 2016 Recommended Operating Budget to the county legislature
on Sept. 18, 2015. The $3.4 billion (total operating expenditures and other financing uses) 2016
budget represents an increase in spending of 1.7% from the 2015 budget. The 2016 budget assumes
sales tax growth of 2.75% from estimated 2015 sales tax revenues.
Initiatives that balance the 2016 budget include recurring revenues and savings along with nonrecurring revenue items. As in 2015, the largest measures are the amortization of the 2016 pension
payment totaling $45 million and a $32.8 million transfer from the ASRF.
For the fourth consecutive year, the budget includes a police district property tax increase (2.9%)
which will generate about $14 million in recurring revenue. In addition, increased fees on motor
vehicles registrations, tax map verifications for mortgages and refinancings and the implementation
of a false alarm fee are expected to generate approximately $41 million in on-going revenue. None of
the increased fees require state legislative approval.
The county has made some progress in its goal toward structural budgetary balance with recurring
revenues and cost reductions. Headcount has been reduced by 1,189 positions since 2012, all county
health centers will have been converted to federally qualified centers, the county nursing home
facility has been closed and union contracts have been settled with health care cost savings to the
county. However, rating stability will depend on continued reduced reliance on non-recurring
measures while economic conditions remain stable to improving.
IMPROVING LIQUIDITY

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
$520 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 is projected to be $565 million and $555 million in 2015 and 2016, respectively. The 2015 RAN
issue was 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, $410 million of TANs were paid off
a month earlier than in 2014. The trend is mildly positive, but Fitch expects the county's reliance on
cash flow borrowings to continue for the next several years.
NARROW CASH FLOW COVERAGE FOR NOTE REPAYMENT

Cash flow provides narrow coverage of 1.3x on the TANs at maturity in September 2016. With
consideration of borrowable balances, coverage improves to 2.0x. Fitch believes the county's cash
flow projections are reasonable; historically, actual coverage for repayments has generally been
better than projections.
STRONG SOCIOECONOMIC CHARACTERISTICS
The county benefits from a broad, diverse economy and close proximity to New York City. Income
levels are well above average with 2013 per capita income totaling 131% of the nation. Full market
value at $255.4 billion is down about 19% from 2008, but market value per capita of $170, 000
remains strong. The county's unemployment rate remains lower than the rates for New York State
and the nation. The June 2015 county unemployment rate was 4.6% compared to 5.2% and 5.5% for
the state and nation, respectively. Year-over-year unemployment was down from 5.1% in June 2014,
due to employment outpacing labor force growth.
MANAGEABLE LONG-TERM LIABILITIES
The county's debt ratios at $3,943 per capita and 2.3% of market value are in the moderate range,
with the latter reflecting the wealthy tax base. Debt service represents a modest 6.0% of total
governmental fund spending.
Debt ratios should remain stable given manageable capital needs and rapid amortization (75.2% of
principal is retired within 10 years).
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 2014 made up a moderate share (5.8%) 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 and 2015 over 12 years.
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 sizable unfunded actuarial accrued liability
for other post-employment benefits (OPEB) of $5.1 billion as of Dec. 31, 2014, or 2.0% of market
value. The county continues to fund its OPEB liability on a pay-as-you-go basis as there is no
authority under present state law to establish a trust account or reserve fund for this liability.
Carrying costs for debt service, pension and OPEB equaled a moderate 15.6% of 2014 total
government fund spending, with the county's amortization of part of the pension payment somewhat
offsetting rapid debt repayment.
Date of Relevant Rating Committees: December 8, 2014 and June 3, 2015.
Additional information is available at 'www.fitchratings.com'.
Fitch recently published an exposure draft of state and local government tax-supported criteria
(Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a
number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates
the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings.

Fitch expects that final criteria will be approved and published by Jan. 20, 2016. Once approved, the
criteria will be applied immediately to any new issue and surveillance rating review. Fitch
anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month
period from the final approval date.
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
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
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Fitch Ratings
Primary Analyst:
Karen Wagner, +1-212-908-0230
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Jessalynn Moro, +1-212-908-0608
Managing Director
or
Committee Chairperson:
Amy Laskey, +1-212-908-0568

Managing Director
or
Media Relations:
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New York
sandro.scenga@fitchratings.com
http://www.reuters.com/article/2015/10/06/ny-fitch-ratings-suffolk-idUSnBw066840a+100+BSW201
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