• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Fitch Rates Dormitory Authority of New York's $395MM Mental Health Bonds 'A+'

Posted on: Friday, 5 September 2008, 15:00 CDT

Fitch Ratings assigns an 'A+' rating to approximately $394,765,000 Dormitory Authority of the State of New York (DASNY) mental health services facilities improvement revenue bonds, series 2008F. Fitch also affirms the underlying 'A+' rating on about $3.8 billion in outstanding mental health services facilities improvement revenue bonds, including the $72,500,000 series 2003C-2 bonds that are being converted from insured variable-rate to uninsured fixed-rate bonds with this transaction. The bonds are scheduled to be sold the week of September 8 through negotiation. The Rating Outlook is Positive.

The 'A+' rating for the mental health bonds is based on the credit quality of the State of New York (general obligations rated 'AA-' with a Positive Outlook by Fitch). Subject to appropriation and pursuant to a financing agreement between DASNY and the department of mental hygiene, the state makes annual payments for debt service from patient care income and payments from voluntary agency facilities. The rating for the bonds further reflects the state's commitment over many decades to providing various types of mental health services, many of which are required by court mandates. Mental health bonds issued under the second resolution adopted in 2003 have a claim on moneys subordinate to that of bonds issued under the prior resolution; however, the budget includes a single appropriation for all debt and Fitch does not make a rating distinction between the liens.

In fiscal 2008, receipts from patient care income and payments from voluntary agency facilities totaled $2.9 billion, 94% of which was Medicaid reimbursements. Patient care receipts grew by almost 16% between fiscal 2004 to fiscal 2008 but are projected to rise at a slower annual pace going forward, reaching $3.09 billion in fiscal 2012. Under a detailed flow of funds, revenues are committed first to debt service with remaining revenue flowing to the mental hygiene patient income account to support the costs of providing services. Maximum annual debt service (MADS) is about $340 million in 2010.

New York's 'AA-' GO rating recognizes the state's substantial wealth and resources and broad economy, somewhat tempered by uneven performance across the state. Although the pace of employment growth has slowed, the state is outperforming the nation. Nonfarm employment rose 0.3% in July compared to a decline of 0.1% for the U.S., and the state's unemployment rate of 5.2% was 91% of the U.S. rate. New York's 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.

In the first-quarter update to its financial plan, released on July 30, the state meaningfully reduced forecasts of tax revenues. The new forecasts identified a $630 million general fund shortfall for the current fiscal year and increased the fiscal 2010 gap estimate by $1.3 billion, to $6.4 billion (including a $310 million Health Care Reform Act (HCRA) shortfall). The revisions were a response to developments since the enacted budget and highlight the importance of the cyclical financial services industry to state revenues. The current-year shortfall was largely attributable to lowered performance of and expectations for business (particularly bank) taxes and, to a lesser extent, sales and use taxes; the outyear estimates for all major tax sources were reduced.

Although Fitch recognizes the significant uncertainty associated with the declining economic and financial environment, the state is taking proactive steps to address the projected budget gaps. The governor has announced specific agency savings targets to resolve the identified $630 million fiscal 2009 shortfall and on August 20 the governor and legislature, in special session, agreed to measures that will provide more than $400 million in fiscal 2009 savings and an additional $600 million in fiscal 2010 savings. This hedges against the possibility of additional shortfalls this year and begins to address the fiscal 2010 gap, which is now reduced to $5.4 billion. Future credit direction will depend on the severity and duration of the downturn and the state's success in achieving sustainable budget solutions. The next quarterly update to the financial plan is scheduled for October 2008.

Fitch issued an exposure draft on July 31 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').

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

More News in this Category