Oneonta, New York; General Obligation

Summary:

Oneonta, New York; General Obligation

Credit Profile:

US$5.545 mil Otsego cnty GO pub imp (serial) bnds ser 2013 due 02/01/2032

Long Term Rating A+/stableNew

Rationale

Standard & Poor's Ratings Services assigned its “'A+” rating to Oneonta, N.Y.'s series 2013 general obligation (GO)public improvement bonds. We also affirmed our “A+” ratings on the city's existing GO debt. The outlook on all theratings is stable.

Factors that strengthen the rating include our view of:

• The stable local economy, anchored by large employers in health care and higher education;
• A very strong financial position entering into the 20 13 budget year; and
• A moderate debt burden and manageable additional capital needs.

These strengths are offset by our view of:

• Lower household income measures compared with state and national levels;
• Low per capita market values, and
• Continued budgeting challenges stemming from constraints on revenue growth and continued increases to pensionand other employee benefit costs.

The city's faith and credit GO pledge secures the bonds, including a property tax pledge on all taxable real propertysubject to the tax limitation law of 2011. Oneonta intends to use the proceeds from these bonds to fund various capitalprojects within the city.

Oneonta is in Upstate New York in Otsego County. At approximately 4.1 square miles, it maintains a population ofroughly 13,499.

Health and higher education services anchor the regional economy, which primarily consists oftourism and dairy farming. Bassett Healthcare, a not-for-profit acute care hospital, serves the region and maintainsroughly 3,500 employees. The city is also home to SUNY Oneonta, a public four-year university with over1,100 employees.

Overall, we consider the city's median household incomes low at 60perecent of the national level, thoughwe acknowledge that the high student population of SUNY Oneonta and Hartwick College dampens these measures tosome extent.

County's unemployment is below the state and nation. Through November 2012, unemployment stood at7.3 percent, virtually on par with what it was a year prior On a regional level, we anticipate employment growth to remaintepid through 2014, and for the unemployment rate to decrease slightly.

The city's property-tax base has seen modest declines over the past few years, though there are some signs ofstabilization. Based on our economic forecasts, we anticipate that median home prices in the Mid-Atlantic regionshould be flat in 2013 and see some growth in 2014. In 2011, the median home value was $110,000, or 64 percent of thenational level.

On the whole, the city's full-market value per capita is low when compared to national averages at$30,465 per capita. Favorably, the tax base is diverse, with the 10 leading taxpayers accounting for 10 percent of totalassessed value.

Despite the tepid economy, Oneonta's financial position remains very strong, in our opinion. The city closed the audited fiscal year on Dec. 31, 2011,with a total fund balance of $10.5 million or a very strong 80 percent of expenditures. Ofthat amount, roughly $6.7 million, or 51 percent of expenditures, was classified as unassigned general fund. In 2012,management is projecting balanced operations as all revenue items came in as expected, and expenditures were within budget. On the whole, we anticipate the city will maintain very strong operating flexibility as it begins its 2013 budget year.

Given the constraints on revenue growth and continued increases to pension and other employee benefit costs,management has had to control spending by consolidating staff positions and offering changes to employee healthcare benefits.

For 2013, the total budget is $14.3 million, virtually flat when compared to the 2012 budget. Oneonta expects to maintain structural balance and preserve its strong cash and liquidity position by continuing to make adjustments as warranted. Real property taxes (33 percent of revenues), sales taxes (32 percent), and state aid (17 percent) are the city’s main general fund revenue sources. Sales taxes are the most sensitive to economic conditions, but we believe the cityhas done well budgeting for this through the recent recession. Favorably, property tax collections are guaranteed bythe county, so the city receives 100 percent of its budgeted tax levy. State aid is likely to come in as budgeted.

Oneonta just recently went through a charter revision, changing the form of government from a Mayor-Council form to a Council-Manager form.

Following a review of management policies and controls, Standard & Poor's considers Oneonta's financialmanagement practices "standard" under its Financial Management Assessment (FMA) methodology, indicating thefinance department maintains adequate policies in most, but not all, key areas.

The FMA is designed to measuremanagement's policies and procedures as it oversees day-to-day operations. Highlights include the city's monthlybudget monitoring and reporting and formal five-year capital improvement program that it updates annually.

Despitemaintaining strong liquidity and cash reserves, the city does not have any formal liquidity or any debt managementpolicies. Nevertheless, it remains proactive about preserving its financial position, and has recently begun preparinginformal multiyear projections to better prepare for future budgeting challenges.

Oneonta's overall net debt burden, including this bond issue, is a low $1,385 per capita, and a moderate 4.5 percent of truemarket value. These figures include the city's proportionate share of overlapping debt from the county and schooldistrict. Debt service carrying charges across all funds was low at 5 percent. We note, however, a portion of that isself-supported through user charges of the city's water and sewer enterprise system.

Following this bond issue, we believe debt service carrying charges will remain low to moderate. Amortization ofprincipal debt is average, with the city maturing 56 percent of its outstanding principal by 2022 and all of its debt outstandingby 2032. Future capital needs are limited and largely focused on street reconstruction. Through 2016, the city's capitalplan totals $14.3 million and funding sources will be a combination of general fund revenues, New York State Highwayaid, and some additional new bonding.

As for long-term liabilities, Oneonta contributes to the state pension systems. Payments to state retirement plans in2013 were budgeted at $1 million or 7 percent of general fund expenditures. This is an overall increase of 15 percent over the prioryear. We understand the city has opted not to amortize any increases of the contribution as allowed by the state;rather, continuing to make adjustments to the budget. The city also provides other post-employrnent benefits (OPEBs)to its employees, which it funds on a pay-as-you-go basis, as the state does not currently permit the finding of OPEBtrusts. Fiscal 2011 contributions totaled $1.1 million or 38 percent of the annual required contribution. The city's unfunded liability as of Dec. 31, 2011 was determined to be roughly $38.9 million.

Outlook

We do not expect to change the rating within the two-year outlook horizon due to a still-challenging budgetaryenvironment stemming both from increasing fixed costs and from management's inability to raise revenues given taxlevy limitations and a slowly growing economy. In our opinion, the stable outlook reflects Oneonta's very stronggeneral fund balance and cash reserves. Furthermore, though the city's financial position will likely be pressured overthe next few years, we believe management will continue to make the necessary adjustments to maintain soundfinancial operations over the two-year outlook period.

While we do not expect this to occur within the outlook horizon, we note that should Oneonta's financial positiondeteriorate significantly and no actions taken to remedy the fiscal imbalance, it could pressure the rating.

Consideration of a higher rating over time would require tax-base expansion, maintaining very strong cash reserves, astronger financial policy framework and a more stable budgetary environment.

Related Criteria AndResearch

USPF Criteria: GO Debt, Oct. 12, 2006

Rating Details (As Of January 15, 2013)

Oneonta GO (AGM)

Unenhanced RatingA+(SPUR)/Stable Affirmed

Many issues are enhanced by bond insurance

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