Reserve challenges mean downgrade for Onondaga County
A declining fund balance drove a one-notch downgrade for Onondaga County, New York.
Moody’s Investors Service lowered its rating for the county to Aa3 from Aa2 Tuesday citing low reserve and liquidity levels coupled with risks for fluctuating sales tax collections. The downgrade occurred in advance of competitive $24.9 million general obligation refunding bond sale slated for May 29 estimated to net present value savings of 5.45%. The credit outlook on the bonds is stable.
The new Moody’s mark is three notches lower than Fitch Ratings, which rated Onondaga AAA with a negative outlook Wednesday. S&P Global Ratings assigned Onondaga County its AA rating with a stable outlook on May 17. The Central New York county, with its seat in Syracuse, has $396 million of outstanding GO debt, according to Fitch.
Onondaga County saw its fund balance as a percentage of revenues decline to 10.9% in the 2018 fiscal year from 20.9% in 2014, according to Moody’s. The county stabilized its reserves in 2018, but Moody’s analyst Robert Weber noted that sales tax revenues that can fluctuate based on economic conditions comprise nearly 43% of the budget.
“While sales taxes are conservatively budgeted for in 2019, an economic downturn could put pressure these revenues going forward,” Weber wrote in his May 21 report. “Given the county's current reserve and liquidity levels, future shortfalls in sales tax receipts could pressure its credit profile.”
Weber noted that surplus operations for Onondaga’s year-ending 2018 fund balance of $81.8 million were driven largely by sales tax revenues exceeding expectations with a 7.7% year-over-year growth. The county is planning to use any surplus generated in 2019 to increase fund balance with the goal of remaining within or exceeding its policy of 10% of revenues in reserve.
Onondaga’s net cash position in the general and debt service funds at the end of 2018 was $42.6 million representing a “weak” 6.5% of revenues, according to Weber. The county experienced a sharp liquidity decline in 2017 due to delays in receipt of approved grant monies.
Efforts to reduce expenses during the last several years including cutting its workforce by 28.5% since 2008 and selling the county-run Van Duyn Home and Hospital in 2013. The county is no longer responsible for the nursing home’s operations, but does have some legacy costs associated with the facility including workers compensation and debt service, according to Weber.
Onondaga had an estimated population of 465,398 as of 2017.
“The county’s tax base, which was valued at $28.7 billion as of 2019, will continue to expand in the near-to-medium term driven by various construction projects ongoing within the City of Syracuse as well as the surrounding area,” said Weber. “As evidence of the county's stable to growing tax base, full value has not declined in over a decade, not even during the recession of 2009 through 2011 when many other counties in the state saw declines.”