Fitch Upgrades Oneida County, NY's GO Rating to 'AA' from 'A+'; Outlook Stable

Fitch Ratings assigns an 'AA' rating to the following Oneida County, New York (the county) general obligations (GO):

--$20.8 million public improvement (serial) bonds, 2016.

The public improvement bonds are expected to sell competitively the week of May 4.

Additionally, Fitch upgrades the rating on the following:

--$124.5 million county general obligation bonds to 'AA' from 'A+';

--Issuer Default Rating to 'AA' from 'A+'.

The Rating Outlook is Stable.

SECURITY

The full faith and credit and taxing power of Oneida County, subject to a 2011 state statute limiting increases in the property tax levy to the lesser of 2% or an inflation factor (tax cap law). This limit can be overridden by a 60% vote of the county legislature.

KEY RATING DRIVERS

The upgrade to 'AA' from 'A+' is recommended based on the county's improved financial operations demonstrated by four years of general fund surpluses which have restored available general fund reserves to levels consistent with a healthy reserve safety margin. Additionally, the county has a modest debt burden, manageable carrying costs, and an improving local tax base with ongoing economic development activity.

The county is located in central New York approximately 50 miles west of Syracuse. The county's population of 233,871 in 2014 has been in a slow decline over several decades; however, the decrease has slowed to less than 1% since 2000.

Revenue Framework: 'aa' factor assessment

The county's 10-year trend of revenue growth was above the rate of inflation but below the U.S. economic performance. The county does have the independent legal ability to exceed the property tax cap without external approvals.

Expenditure Framework: 'aa' factor assessment

Oneida county's finances are challenged by a high and growing state-mandated social service burden but have demonstrated the ability to control costs. Carrying costs for debt, pension and other post-employment benefits are low.

Long-Term Liability Burden: 'aaa' factor assessment

Overall debt and pension liabilities account for 4.1% of personal income.

Operating Performance: 'aa' factor assessment

The county is expected to maintain structurally balanced operations based on the positive trend of four consecutive general fund surpluses and management's ability to control expenditure growth despite increasing health and social services expenditures.

RATING SENSITIVITIES

The county's ability to maintain positive financial performance, adequate reserves and conservative use of gaming revenues are key factors to future credit quality assessment.

CREDIT PROFILE

The county's real estate market weathered the national housing downturn well. Assessed valuation continues to grow modestly as a result of continued development and local revaluations. The county is expected to benefit from a $1.5 billion public-private partnership that includes the construction of the Computer Chip Commercialization Center spearheaded by the State University of New York (SUNY) College of Nanoscience and Engineering and SUNYIT. Consistent with the upstate New York region, median household income levels in the county remain below average at 90% and 91% of state and national averages, respectively. Market value per capita is weak at $44,000. The 5.4% unemployment rate was slightly above the state's 5.2% and the nation's rate of 5.1% in 2016.

Revenue Framework

The Revenue Framework is assessed at 'aa' based on the slow natural growth of revenues absent policy action and a soft property tax cap which can be overridden by the county to manage property tax growth.

Natural revenue growth has been slow absent policy actions and settlement revenues. In 2004, the Board of County Legislators adopted a resolution that the State Legislature passed into law authorizing an additional sales tax increase out of necessity. The sales tax growth has been prone to cyclicality and fiscal 2015 taxes declined by 2.4% from 2014 receipts. Assessed property values increased by a modest 2.4% since 2012. The county did not increase the property tax rates in fiscal 2015 and lowered the budgeted fiscal 2016 tax levy by 1.4% from the prior year.

The county is subject to the 2011 state statute limiting increases in the property tax levy to the lesser of 2% or an inflation factor (tax cap law). This limit can be overridden by a 60% vote of the county legislature. Sales tax increases must be approved by the state of New York.

Expenditure Framework

The Expenditure Framework assessment is 'aa' because Oneida county's finances have a high and growing state-mandated social service burden similar to many upstate New York counties. Nonetheless, the county has demonstrated its ability to control costs and routinely underspends its budget.

Portions of the county's annual pension costs were amortized for budgetary savings beginning in fiscal 2011 through the NYS Employer Contribution Stabilization Program. In an effort to reduce long-term liability costs and prepay the amortized portion, the county utilized approximately $15.5 million in fund balance in fiscal 2015 to fund long-term liabilities including funding $10 million in pension amortization pre-payments reducing the liability to a manageable $6.5 million and $4 million to fund capital projects. Positively, growth in Medicaid spending has shifted to the state, which provides a small measure of mandate cost relief.

Carry costs are modest for the county with pension, other post-employee benefits (OPEB) and debt service costs accounting for 10.1% of general fund expenditures. The county has the ability to control employee costs and manage headcount under the current labor environment. Labor costs have been managed through modest salary increases under union negotiations and through attrition and vacancies.

Long-Term Liability Burden

The long-term liability is moderate with the county's overall debt and net pension liability equivalent to 4.1% of personal income. Overall debt is 3.5% and net pension liability is 0.3% of full market value. Amortization is rapid with 85.8% of principal paid within 10 years.

The county is also contingently liable for deficits as well as repayment of $36 million of debt related to the Oneida-Herkimer Solid Waste Management Authority (rated 'A' with a Stable Outlook), although no support has been necessary thus far. The obligation to repay the debt is a joint obligation with Herkimer County.

The county participates in state-run cost-sharing defined benefit pension plans which are well-funded under the aggregate cost valuation method. The combined ratio of Fitch adjusted actuarial assets to liabilities is 94%. The county has taken advantage of the ability granted by the state to amortize some of the increases in annual pension payments through the NYS Employer Contribution Stabilization Program. The county prepaid a significant portion of the amortized pension costs and as of year-end fiscal 2015 only has $6.5 million outstanding in amortized costs. Fitch expects future pension payments to remain manageable.

The county funds its OPEB on a pay-as-you-go basis. The unfunded actuarial liability is $81 million, or a modest 0.79% of full market value.

Operating Performance

The county's financial performance has been positive since 2011 with general fund surpluses for the past four years which increased general fund balances to 8.1% of general fund expenditures, up from a 3.8% low in fiscal 2011. The county will benefit from Tribal Revenue sharing under a settlement with the Oneida Nation in 2014 in which 25% of net gaming revenue from slot machines is distributed to the state which is estimated to be approximately $50 million annually. The state is required to distribute 25% of its share, approximately $12.5 million to the county, on an annual basis in addition to the $2.5 million annual back property claim payments to be paid over 19.25 years. The settlement revenues are vulnerable to competition but provide the county with additional revenue flexibility to offset sizable mandated social service costs.

Management regained structurally balanced operations from 2011 through 2014 which increased the county's financial flexibility and brought available general fund reserves to a strong safety margin position. In fiscal 2015, the county anticipates using $15.5 million in general fund balance to retire $10 million in amortized pension payments and $4 million to fund capital projects. The use of the fund balance to prepay pension costs and to fund pay as you go capital is expected to save the county $2.3 million in interest costs. The estimated total general fund balance at the end of fiscal 2015 is expected to be approximately $25 million, 4.5% of general fund expenditures. In fiscal 2016, the budget included a 1.4% property tax levy reduction lowering property taxes by $1.2 million and appropriated general fund balance by $4.4 million. The county also reports anticipated unbudgeted expenditure increases for health and social service costs which are expected to be partially offset with $10 million in one-time revenues. Management expects to monitor expenditures closely to minimize any additional use of general fund balance.

Additional information is available at www.fitchratings.com

Applicable Criteria

U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478

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