Fitch Downgrades Montgomery County, NY GOs to 'BBB+'; Stable Outlook

Business Wire, Oct 12, 2004

NEW YORK -- Fitch Ratings downgrades the rating on Montgomery County, NY's outstanding general obligation (GO) bonds to 'BBB+' from 'A-'. The Rating Outlook is Stable. The rating action affects approximately $30 million of outstanding GO bonds.

The downgrade to 'BBB+' reflects the deterioration in county reserve levels; delays in the publication of audited financial statements; and limited taxing power as the county is operating at the maximum level under the self-imposed property tax cap. Other credit factors include a diversified employment base, below average income levels, above average unemployment rates and moderate debt levels. Despite slim financial margins driven by the tax cap and fixed cost pressures, an important credit strength is the county's demonstrated willingness to raise recurring revenues in order to build fiscal stability.

Montgomery County is located 25 miles west of Albany and is bisected by the New York State Thruway. The county's economy is driven by agriculture, manufacturing and services. Population has shown consistent declines since the 1970's reaching 49,708 for the 2000 census. Employment figures show similar trends with a declining labor force and above average unemployment rates. The 2003 county unemployment rate was 7.1%; above the state's 6.3% and the nation's 6%. Income levels are below average and relative to the state and nation have held steady over the last decade. Per capita personal income was $25,546 in 2002; representing 71.3% and 82.7% of state and national averages, respectively.

The county's financial position has declined over the last few years but is expected to stabilize with two years of tax increases and another increase included in the 2005 proposed budget. A major constricting factor on county operations is the self-imposed property tax cap, limiting the tax levy to 1.65% of the county's five-year full property valuation average. In fiscal 2002, the most recent available audit, the county posted a low $178,000 unreserved fund balance, or 0.3% of general fund spending. The 2003 audit, reportedly available at the end of the month, should show an increase general fund balance to $2.6 million or an adequate 4.3% of spending. Financial results for 2004 will benefit from the second consecutive tax increase and the county expects a slight surplus, again, adding to fund balance. The 2005 proposed budget includes another property tax increase and the elimination of certain discretionary programs. Property tax collection rates are low at approximately 94%, however, the county conducts an annual property auction and typically reaches 98%-99% total collections.

Overall debt levels are low to moderate at $996 per capita and 3.6% of market value. The debt service burden on the budget is on the high side of average, comprising 10.2% of spending.