Fitch Ratings assigns an ‘AA-‘ rating to $457 million State of New York general obligation (GO) bonds consisting of:
–$418.19 million series 2009A tax-exempt bonds;
–$38.755 million series 2009B taxable bonds.
The bonds are scheduled to sell through negotiation the week of March 2. In addition, Fitch affirms the underlying or unenhanced rating of approximately $3.2 billion outstanding New York GO bonds at ‘AA-‘. The Rating Outlook is Stable.
New York’s ‘AA-‘ GO rating reflects the state’s substantial wealth and resources and broad economy, recognizing 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; pensions are well funded.
About 20% of state tax revenue has come from the financial services sector and, as would be expected, the deteriorating economic and financial environment has been particularly troublesome for New York. The state is forecasting nonfarm employment down 2.1% in 2009 and another 0.4% in 2010, and personal income down 1.6% this year before rising 2.7% next year. There is significant risk to the economic and revenue outlook. The extent of actual financial services industry losses, and the ultimate shape that the industry takes, remain a major uncertainty going forward.
The state has taken proactive positive steps to identify and address projected budget gaps over the course of fiscal 2009 as revenue forecasts have been reduced steeply. The governor’s December 2008 executive budget proposal closed a $1.7 billion gap for fiscal 2009 (which ends on March 31, 2009) and a $13.7 billion gap for fiscal 2010; these estimates were modified only slightly, to $1.6 billion and $13.8 billion, respectively, with the 30-day amendments to the budget released on Jan. 15, 2009. On Feb. 3, 2009 the legislature and governor agreed to measures to close the $1.6 billion fiscal 2009 gap, primarily through fund transfers and insurance industry assessments. Following these actions the fiscal 2010 gap was reduced to a still large $13 billion. The governor’s proposed budget solutions for fiscal 2010 rely on recurring spending and revenue actions, although broad-based tax increases are not included. No deficit financing is employed and no extraordinary federal aid was assumed, although the state now expects to receive $6.5 billion in direct federal aid from the stimulus package in fiscals 2009 and 2010. On Feb. 24, 2009 the governor and leaders of the state senate and assembly released their consensus revenue forecast, which lowered the forecast of general fund receipts for the current and upcoming fiscal year by $1 billion.
New York’s personal income per capita is the fifth highest among the states, at 121% of the U.S. average. Following a 2.6% decline from 2000-2003, nonfarm employment expanded year-over-year every month from March 2004 through October 2008, with performance in New York City leading the state. Employment dropped in November 2008 (by 0.6%) and again in December (by 1.4%), and the state’s unemployment rate rose to 6.6% in December. Although this remains below the U.S. rate of 7.2% for the month, it is well above the state’s December 2007 rate of 4.6%. 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.
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 general obligation. 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.
The series 2009A bonds will mature Feb. 15, 2010-2039, callable beginning Feb. 15, 2019. The series 2009B bonds will mature Feb. 15, 2010-19 and are not callable.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research ‘Exposure Draft: Reassessment of the Municipal Ratings Framework’.) At this time, Fitch is deferring its final determination on municipal recalibration. Fitch will continue to monitor market and credit conditions, and plans to revisit the recalibration in the first quarter of 2009.