S&P: New York State Dormitory Authority's Series 2016A State Sales Tax Revenue Bonds Rated 'AAA'
The bonds are secured by a dedication of state sales tax in an amount initially equal to a 1% tax rate. The dedication is made from within the state's existing sales tax collection and does not represent an increase in the overall state tax rate. The dedicated tax is separate and distinct from the 1% sales tax securing bonds of the New York Local Government Assistance Corp. (LGAC; AAA/Stable) and a $170 million payment to New York City, which secures sales tax asset receivable corporation bonds outstanding (AAA). After all of LGAC's obligations are paid or discharged, projected on or before 2025, the state sales tax dedicated to the sales tax revenue bonds will increase to a 2% rate of taxation.
The rating reflects what we view as:The large and diverse statewide economy of more than 19 million residents contributing to the sales tax revenue that secures the bonds;Very high coverage of maximum annual debt service (MADS). Based on dedicated revenues collected in the most recently completed fiscal year we expect pro forma MADS coverage to be 5.3x after this issuance; we expect steady debt issuance based on the state's current capital financing plan but coverage should remain strong. The state estimates that MADS coverage will decline to 3.9x by fiscal 2020; The magnitude of the sales tax set-aside in the comptroller-held sales tax revenue bond tax fund and its significance to the state's overall general fund revenue base, which substantially mitigates the risk of state non-appropriation in our view; andVery strong 2.0x additional bonds test, which protects against volatility of receipts from both economic and statutory changes in the future. We understand that bond proceeds will be used to finance certain programs and projects within the state including capital projects for road, highway and other transportation infrastructure programs, and grants for educational and library facilities.
"The stable outlook reflects S&P Global Ratings' expectation of continued strong debt service coverage from dedicated sales tax revenues over the two-year outlook horizon," said S&P Global Ratings credit analyst Eden Perry.
We believe that the substantial and diverse state sales tax base and current bond provisions insulate bondholders from any revenue volatility despite the expectation of significant additional debt issuance under this program. Although not expected at this time, any rapid acceleration of debt issuance above planned amounts or changes to the sales tax base that substantially lower sales tax revenues and coverage could pressure the rating.