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Fitch Ratings has affirmed the 'AA-' rating on Albany, NY's unlimited tax GO (general obligation) bonds series 2000, 2001,2003,2004 and 2006 in the course of routine surveillance.
The Rating Outlook is Stable.
--The city has managed budgetary stresses over the past three years, driven by flat revenue trends, with expenditure cuts and moderate use of reserves.
--The tax base is relatively stable despite recent modest valuation declines and a significant tax-exempt component, and is experiencing some expansion and diversification within the medical and technology sectors.
--As the state capital, the local economy is sizable and stable, anchored by state government employment and complemented by the educational and medical services sector.
--The overall debt burden remains above average with manageable expected future capital needs.
KEY RATING DRIVERS:
--Maintenance of operational balance and sound reserve levels.
--Continued economic stabilization and improvement.
The city's unlimited tax full faith and credit pledge.
Albany, located approximately 140 miles north of New York City, is the state capital and home to many state agencies and departments. State government is the largest employer (49,314 employees) complemented by sizable health care, higher education and technology sector employment. With state government and private sector job losses over the past three years, a declining labor force has kept unemployment rates on par with state levels and below national levels. The states' fiscal 2012 budget includes sizable workforce concessions and savings which if not realized could result in 9,800 state worker layoffs and negatively impact city employment.
On a positive note, three local medical centers recently announced sizable capital expansion projects and new jobs. Additionally, expansion continues in connection with Albany NanoTech, a one million square foot university-driven research and development center valued at $6.5 billion.
Following a revaluation effective fiscal 2008 (FYE 12/31) which increased the city's assessed valuation by 57%, assessed values have declined by 10% to just under $5 billion in fiscal 2011. Officials indicated there are no major tax appeals or settlements outstanding and housing values appear to be stable. Building permit and construction activity increased in fiscal 2010 and the trend is continuing in fiscal 2011. Leading taxpayers are a diverse mix of utilities, commercial entities, and office buildings with the top ten comprising a low 6.7% of total assessed valuation.
Approximately 55% of the city's tax base is exempt from property taxes. The city continues to receive payments-in-lieu of taxes (PILOTs) from the state's Empire State Complex but at a reduced amount of $15 million annually in 2011 through 2039. The 2010 census indicates a 2.3% increase in city population from 2000 to 97,856. This increase, coupled with improving retail sales activity, caused city sales tax revenues to increase in fiscal 2011.
Over the past five years, the city has maintained sound financial reserve levels while addressing slowing revenues and expenditure pressures. Property taxes represent one-third of annual general fund revenues followed by sales and use taxes at 18% and PILOTs and other state aid, each at 12%. The recently adopted real property tax levy cap and mandate relief provisions legislation which limits tax levy increases to the lower of inflation or 2% is expected to have minimal impact given the diversity of the city's overall revenues and the ability to override the cap with a 60% vote of the governing body.
Approximately 80% of expenses are for salaries and benefits, much of which are driven by union contracts. Relationships between the city and various unions are reported to be amicable but significant cost savings have been challenging and the city faces exposure to potential retroactive payments. The fiscal 2009 general fund unreserved fund balance declined by $3.8 million or 19%, more than the $1.7 million budgeted, largely due to slowed county-wide economic activity resulting in sales and use taxes that were $3 million (9%) under budget. Overall expenditures were $2 million (2%) under budget.
Management indicates that fiscal 2010 ended with a modest operating surplus of $900,000 compared to a budgeted deficit of $5.3 million (on an unaudited basis) which will increase unreserved general fund balance to approximately $17 million or 11% of budgeted expenditures. In fiscal 2010 general government expenses were reduced by keeping open positions unfilled coupled with the elimination of 70 positions for a savings of approximately $2 million and health insurance savings of approximately $3 million.
For fiscal 2011, the city initially identified a potential $20 million general fund deficit, driven by the scheduled $7.85 million decrease of state PILOT payments, slowly improving sales and property tax revenues, and increasing public safety, pension and debt service costs. The fiscal 2011 adopted budget reduced the gap to $6.1 million by identifying city property sales and reducing expenditures through a police restructuring, further reducing health insurance costs, and limited hiring.
Performance to date is slightly better than expected, with higher than budgeted sales tax revenues and heightened expenditure controls. Liquidity currently is adequate but vulnerable to the timing of receipt of various state payments. Fitch's rating assumes that the city will maintain operational balance, minimize appropriated fund balance drawdowns and maintain sound overall reserve levels.
The city's overall debt levels are above average at $2,704 per capita and 5.0% of market value. Additional debt issuances are limited to refinancing a portion of the city's currently outstanding BANs with bonds and underlying school district issuances. Debt retirement is rapid with 97% amortized in the next ten years. The city participates in the state directed pension plans and contributes 100% of its annual required contribution each year. Additionally the city provides other post employment benefits (OPEB), which the city funds on a pay-as-you-go basis and had a sizable unfunded actuarial accrued liability of $251 million as of 2/1/08. Combined pension and OPEB expenses are a high 12.7% of annual expenditures and projected to increase in fiscal 2011.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index and IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 16, 2010);
--'U.S. Local Government Tax-Supported Rating Criteria' (Oct. 08, 2010).
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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