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Fitch Rates Suffolk County, NY's GOs, RANs & BANs;

Outlook Revised to Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to Suffolk County, NY
(the county) bonds and notes:
--Approximately $65,000,000 refunding serial bonds-2014 rated 'A';
--$85,000,000 revenue anticipation notes (RANs)-2014 rated 'F1';
--$36,110,066 bond anticipation notes (BANs)-2014 Series A rated 'F1'.
The bonds are being issued to refund certain series of bonds for present value debt service savings.
The RANs are being issued in anticipation of the receipt of certain revenues expected to be received
by the county for the 2014 fiscal year from state and federal aid. The BAN proceeds will be used to
redeem 2013 series A BANs issued to finance the cost of an arbitration award in favor of the Suffolk
County Corrections Officers Association.
In addition, Fitch affirms the following rating:
--Approximately $1.3 billion of outstanding general obligation (GO) bonds at 'A'.
The Rating Outlook is revised to Stable from Negative.
SECURITY
The bonds and notes are general obligations of the county with a pledge of its faith and credit and ad
valorem tax, subject to the 2011 state statute limiting property tax increases to the lesser of 2% or
an inflation factor (the tax cap law). This limit can be overridden annually by a 60% vote of the
county legislature.
KEY RATING DRIVERS
OUTLOOK REVISED TO STABLE: Fitch views positively the county's progress to date in improving
financial operations, as reflected in the budgetary surplus achieved in 2013.
CHALLENGED FINANCIAL PROFILE: The county's financial profile is characterized by a large but
declining negative general fund reserve position, high reliance on cash flow borrowing, and limited
financial flexibility.
SHORT-TERM MARKET RELIANCE; ADEQUATE COVERAGE: Market access remains critical given
the county's high reliance on cash flow borrowing due to weak liquidity levels. Revenues expected to
be received by the 2015 note repayment date provide adequate coverage.
STRONG ECONOMIC CHARACTERISTICS: The county benefits from a broad and wealthy economy
and tax base characterized by below-average unemployment rates and high wealth levels.

MANAGEABLE LONG-TERM LIABILITIES: The sizable and wealthy tax base results in a manageable
debt burden, and amortization is above average. Capital needs are moderate and state pension plans
are well funded.
RATING SENSITIVITIES
FINANCIAL PERFORMANCE: The county's ability to sustain budgetary balance, build reserves to
adequate levels with largely recurring measures, and continue reducing short-term borrowing would
be positive credit considerations.
CREDIT PROFILE
Suffolk is among the wealthiest counties in the state and nation, benefiting from its proximity to
New York City and a well-educated workforce. The county encompasses the eastern two-thirds of
Long Island including the Hamptons and Fire Island. The county's growing population totals
approximately 1.5 million, the largest of any county in New York State outside of New York City.
BUDGETARY SURPLUS PROJECTED FOR 2013
For year-end Dec. 31, 2013, the county is projecting a $13 million general fund budgetary surplus
($10 million surplus when police district fund is added) compared to a $154 million shortfall in 2012
($156 million deficit with police district). The improvement is a result of strong sales tax growth and
higher than estimated property tax revenues combined with expenditure reductions. For 2013, sales
taxes were up 6.8% from 2012. This increase is higher than the 3.0% increase in 2012 and is the
highest growth rate since 2004. Property tax revenue was $13 million higher than estimates.

On a preliminary, unaudited GAAP basis the county is estimating a general fund balance of negative
$205.8 million, an approximately $119 million improvement from the negative $325.2 million
recorded at year-end 2012. Budgetary improvement yielded $158 million, but was offset by pension
accrual ($12 million) and GASB 48 treatment of tobacco settlement proceeds ($27 million).
Government restructuring has yielded expenditure reductions and some new sources of recurring
revenues. The most significant measure was the amortization of $60.7 million of the 2013 pension
payment, which provided relief in 2013 but increases costs in later years. Other sizeable measures
that Fitch considers to be more structural in nature included: (1) a property tax increase in the
police district that provided additional revenue of $12.4 million; (2) $20 million in annual savings
from the embargo of county department funds as a result of the declaration of a second fiscal
emergency in 2013; and (3) a decrease of approximately 1,000 employees since January 2012 with
projected annualized savings of $53.3 million in 2013. Strict position control is in place with open

positions requiring authorization from the county executive.


2014 BUDGET INCLUDES USE OF RESERVES
The $3.4 billion (total operating expenditures and other financing uses) adopted 2014 budget
represents a 3.2% increase in spending from the 2013 budget. Sales tax revenue growth in 2014 of
3% over 2013 estimated sales tax revenues appears reasonable as economic improvement is
expected to continue. Year to date 2014 sales tax revenues are slightly ahead of last year.
Major budget initiatives that balance the 2014 budget include recurring revenues and savings, and a
lesser reliance on non-recurring revenue items. As in 2013, the largest measure is the amortization
of $87 million of the 2014 pension payment.
For the third consecutive year, in January 2014 the county executive declared a fiscal emergency
which will provide for savings of at least $7 million. To date, $7.3 million has been placed in a
contingency reserve. On a recurring basis and for the second year in a row, the budget includes a
police district property tax increase which will generate $11.3 million in revenue.
Additional recurring revenue will be provided by the implementation of speed cameras near schools
which should produce $7 million-$10 million. The Traffic Violations Bureau, which was created in
2012 and generated $23 million in 2013, should generate an additional $10 million in 2014. The
state has also granted the county permission to operate 1,000 video lottery terminals, which is
expected to bring in $4 million of revenues.
The transition of the remaining county health centers to federally qualified centers should produce
savings of approximately $3 million. Additionally, the county expects to continue to realize savings
from the 2012 and 2013 staff reductions and strict control over positions and overtime costs. Not
guaranteed, but included in the budget, is anticipated revenue of $3.2 million from the sale of the
nursing home property. Management reports that they have received an $11.5 million offer on the
property but it is on hold for six months while the county researches the feasibility of converting the
facility to treat non-violent drug addict prisoners, currently residing in the county's overcrowded
jails.
Positively, the budget does not contemplate the use of funds from the tax stabilization reserve fund.
However, the budget includes the transfer of $32.8 million from the sewer assessment stabilization
reserve fund to cover a spike in 2014 debt service payments. The use of reserve funds, while not
ideal, provides the county with flexibility, a lower cost of funding, does not require state approval,
and does not increase costs in later years.
SLIGHT DECLINE IN 2014 SHORT-TERM CASH FLOW BORROWING
The county has historically issued annual cash flow notes in anticipation of receipt of delinquent and
current property taxes (DTANs and TANs, respectively). However, due to limited financial flexibility
and a narrowing cash position in 2012 and 2013 the amount of these borrowings increased and
RANs were issued.
The county issued $600 million in cash flow notes in 2012 compared to $520 million in 2011. Cash
flow borrowing in 2013 again increased to $625 million, or a high 19.2% of 2013 budgetary
expenses. Positive for 2014, the county is estimating $595 million in cash flow borrowing with the
current RAN issue $30 million less than 2013. Projections include an additional $10 million
reduction in RAN issuance in March 2015. The decline is positive, but Fitch expects the county's

heavy reliance on cash flow borrowings to continue for the next several years.
ADEQUATE CASH FLOW COVERAGE FOR NOTE REPAYMENT
Cash flow coverage at maturity (March 2015) on the current RAN issue is adequate at 1.51x and is
an improvement from previous thin coverage given the lower amount of the current issue. Fitch
believes the county's cash flow projections are reasonable based on past projections and actual
coverage ratios.
STRONG SOCIOECONOMIC CHARACTERISTICS
The county benefits from a broad, diverse economy and well above-average economic indicators,
including solid income levels (per capita income in 2012 was 131% of the nation) and high per capita
market value ($176,000). The county's unemployment rate remains lower than the rates for New
York State and the nation. In December 2013, the county's unemployment rate was 5.3% compared
to 6.6% and 6.5% for the state and nation, respectively. The December 2013 rate is lower than the
rate recorded a year prior, as strong growth in employment (2.5%) outpaced labor force expansion
(0.5%).
MANAGEABLE LONG-TERM LIABILIITES
The county's debt ratios at $4,055 per capita and 2.4% of market value are moderate, with the latter
reflecting the wealthy tax base. Debt service represents a modest 5.0% of total government fund
spending.
Debt ratios should remain stable given manageable capital needs and above-average amortization
with 70% retired in 10 years. The county usually issues debt on a semi-annual basis to finance its
ongoing capital program, and plans on issuing approximately $65 million of GO bonds during the
spring of 2014 for various general capital purposes. The 2014-2016 capital program totals $681.7
million, a $166 million increase from the $515.2 million adopted 2013-2015 plan. The plan includes
approximately $152 million of projects which may be eligible for reimbursement by FEMA or other
Federal Disaster Funds.
WELL-FUNDED STATE PENSION PLANS
The county participates in well-funded New York State pension plans. At March 31, 2013, the state
and local employees' plan and the state and local police and fire plan had funded ratios of 87% and
88%, respectively. Using Fitch's more conservative 7% discount rate assumption, the plans' funding
levels would still be sound at an estimated 82% and 83%.
County pension payments in 2012 made up a moderate share (4.4%) of spending. The county has
taken advantage of the ability granted by the state to amortize most of the increase in annual
pension payments for 2012 and 2013 over 10 years and for 2014 over 12 years. This amortization
option provides some near-term budget relief but will make future-year budgeting for these
payments more challenging.
The moderate pension liability is somewhat offset by a high unfunded actuarial accrued liability for
other post-employment benefits (OPEB) at $4.6 billion as of Dec. 31, 2012 or 1.8% of market value.
Carrying costs for debt service, pension and OPEB equaled a fairly low 12.7% of 2012 total
government fund spending, with the county's amortization of part of the pension payment somewhat

offsetting rapid debt repayment.


Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this
action was additionally informed by information from Creditscope, University Financial Associates,
CoreLogic Case-Shiller Index, IHS Global Insight, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825002
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