OREANDA-NEWS. Fitch Ratings assigns an 'A' rating to the following Suffolk County, NY (the county) bonds:

--\$61,645,000 public improvement bonds - 2015 series A.

The bonds are expected to be sold through competitive sale on June 10. The bonds are being issued to provide funding for various capital projects.

In addition, Fitch affirms the following ratings:

--Approximately \$1.4 billion of outstanding general obligation (GO) bonds at 'A'.

SECURITY

The bonds 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

CHALLENGED FINANCIAL PROFILE: The county's financial profile will continue to be challenged by a large negative general fund reserve position (GAAP basis) due in part to persistent operating deficits and revenue volatility caused by a high dependence on economically sensitive sales tax receipts.

IMPROVING LIQUIDIDY: County liquidity has improved with the 2015 RAN issue representing a \$30 million (35%) decrease from the 2014 issue; an additional \$10 million decrease is projected in 2016.
STRONG ECONOMIC PROFILE: 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 debt amortization is above average. Capital needs are moderate and state pension plans are well funded.

RATING SENSITIVITIES
FINANCIAL PERFORMANCE: Continued operating deficits and filling gaps with one-shots, especially in a positive economic environment, would be considered a credit negative by Fitch and would lead to a downgrade.

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 work force. The county encompasses the eastern two-thirds of Long Island including the Hamptons and Fire Island. The county's population of approximately 1.5 million is the largest of any county in the state outside of New York City. Between 2000 and 2010, county population increased by a total of 5.2%. The total growth rate from 2010 to 2013 was a modest 0.4% and a slow rate of growth is expected to continue into at least the near future.

WEAKER FINANCIAL PERFORMANCE IN 2014

After posting positive GAAP results in 2013 for the first time in at least five years, operations were weaker in 2014. On an unaudited GAAP basis for 2014(year-end Dec. 31) the county reported a combined general fund and police district deficit after transfers of \$21.6 million (negative 0.75% of spending) compared to a surplus of \$128.5 million(4.7% of spending) in 2013.

Sales tax revenues for 2014 were budgeted to increase by 2.8%, but the growth rate was slower than anticipated at 1.3%, resulting in an \$18.1 million shortfall. The sales tax shortfall was offset by lower than expected employee expenses and savings of \$13 million generated by the 2014 declaration of a fiscal emergency.

The unaudited GAAP combined unrestricted fund balance increased to a negative \$317.6 million (negative 11% of spending) from negative \$303.3 million (negative 11.1% of spending) in 2013.

USE OF RESERVES IN 2015 BUDGET
The 2015 budget contains recurring revenues and savings including the third consecutive police district property tax increase. Although less reliant on one-off transactions, the budget does rely on a \$59.8 million pension amortization and the use of \$22.5 million from the ASRF. Positively, the pension deferral amount is a decrease from previous years and about \$20 million less than the county is permitted to amortize.

A referendum was approved on the November 2014 ballot which authorizes the county to borrow from the ASRF through 2017 to provide tax relief. All amounts borrowed from the ASRF will be repaid by 2029, with payments commencing in 2018. Fitch believes while the use of reserve funds is not ideal, it does provide the county with flexibility and a lower cost of funding than bonded debt.

Due to the 2014 sales tax shortfall, earlier this year the county executive declared a fourth consecutive fiscal emergency, allowing the county's budget office to embargo up to 10% of available appropriations, which is anticipated to generate savings of approximately \$25 million.

The 2015 budget assumes sales tax growth of 4.87% from estimated 2014 sales tax revenues, which Fitch views as aggressive. As of May 12, 2015, the county has received the seventh of 27 sales tax distributions to be received in 2015. To meet estimated sales tax projections, an 8.6% sales tax growth would be required for the remainder of 2015, which Fitch considers highly unlikely. The county has identified mitigants to address the projected budget shortfall including savings on a recently negotiated contract with correction officers, payment from the state for eminent domain, an additional embargo, self-insurance and health insurance interfund credits and other miscellaneous revenues and expenditures, some of which are non-recurring fixes.

The county has made some progress in its goal toward structural budgetary balance with recurring revenues and cost reductions. Headcount has been reduced by 1,131 positions since 2012, all county health centers will have been converted to federally qualified centers by the end of 2015, the county nursing home facility has been closed and union contracts have been settled with health care cost savings to the county. However, rating stability will depend on budgetary balance through a combination of additional recurring revenues and/or lower expenditures in lieu of the use of reserves and pension amortization.

IMPROVING LIQUIDITY

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 revenue anticipation notes (RANs) were issued.

The county issued \$625 million in cash flow notes in 2013, growing from \$600 million in 2012 and \$510 million in 2011. Cash flow borrowing in 2013 was a high 19.2% of 2013 budgetary expenses. Reflecting improved liquidity, the county's cash flow borrowing in 2014 decreased to \$595 million and is projected to be \$565 million in 2015. The 2015 RAN issue was a \$30 million reduction from the April 2014 issue. The RAN issue for 2016 is projected to decline another \$10 million to \$45 million. Additionally, in 2015, TANs will be paid off a month earlier than in 2014. The trend is mildly positive, but Fitch expects the county's reliance on cash flow borrowings to continue for the next several years.
STRONG SOCIOECONOMIC CHARACTERISTICS

The county benefits from a broad, diverse economy and close proximity to New York City. Income levels are well above average with 2013 per capita income totaling 131% of the nation. Assessed and market value increased modestly in 2015. Full market value at \$255.4 billion is down about 19% from 2008, but market value per capita of \$171,000 remains strong. The county's unemployment rate remains lower than the rates for New York State and the nation. In March 2015 the county's unemployment rate was 5.1% compared to 5.8% and 5.6% for the state and nation, respectively. Year-over-year unemployment was down from 5.9% in March 2014, due to a decline in the labor force (1.0%) outpacing a decline in employment growth (0.1%).

MANAGEABLE LONG-TERM LIABILIITES

The county's debt ratios at \$3,840 per capita and 2.3% of market value are in the moderate range, with the latter reflecting the wealthy tax base. Debt service represents a modest 5.0% of total governmental fund spending.

Debt ratios should remain stable given manageable capital needs and rapid amortization (75.9% of principal is retired within ten years). The county usually issues debt on a semi-annual basis to finance its ongoing capital program. The county plans on issuing approximately \$60 million of GO bonds during the fall of 2015 for various general capital purposes.

The county participates in well-funded New York State pension plans. As of March 31, 2014, the state and local employees' plan and the state and local police and fire plan had funded ratios of 88% and 89%, respectively. Using Fitch's more conservative 7% discount rate assumption the plans' funding levels would still be sound at an estimated 84% and 85%, respectively.

County pension payments in 2013 made up a moderate share (4.4%) of government fund 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 and 2015 over 12 years. The 2015 adopted budget reduces the amount of amortization to \$60 million out of a possible \$80 million. 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 somewhat high unfunded actuarial accrued liability for other post-employment benefits (OPEB) of \$5.0 billion as of Dec. 31, 2013, or 2.0% of market value. Carrying costs for debt service, pension and OPEB equaled a moderate 14.5% of 2013 total government fund spending, with the county's amortization of part of the pension payment somewhat offsetting rapid debt repayment.