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Fitch affirms Rochester bonds at A+ rating

Rochester Business Journal
June 27, 2014

The city of Rochester has maintained its A+ rating on limited tax general obligation bonds totaling $197 million, and its rating outlook is stable, officials announced Friday.

The grade from Fitch Ratings Inc. is based on satisfactory reserves, diversified revenue streams, fixed costs for debt and pension, and debt burden, officials said.

“This is excellent news for Rochester and a strong affirmation from nationally recognized experts that we are sound and conservative fiscal managers,” Mayor Lovely Warren said in a statement.

Rochester’s economy has transitioned from reliance on Eastman Kodak Co., is anchored by education and health care, and is the economic center for the region, Fitch reported.

Of the city’s revenues, 31 percent comes from property taxes, 29 percent from sales taxes and 26 percent from state aid, Fitch reported.

Rochester’s socioeconomic profile is weak, Fitch added, driven by its high rates of poverty and unemployment. Per-capita income levels are at 58 percent of the state average, and individual poverty rates more than double the state and national mean, it reported.

Its reserves have declined materially, which could lead to downward pressure on future ratings, Fitch reported.

The city’s taxable assessed value is has been steady through the national economic downturn, it reported, and is somewhat concentrated, with Rochester Gas and Electric Corp. accounting for 10 percent of the assessed value.

The city's pensions were well-funded as of March 31, Fitch reported.

Rochester’s employee retirement system was funded at 87 percent, or an estimated 83 percent assuming a 7 percent return. Pensions for police and firefighters were 88 percent funded, or an estimated 83 percent assuming a 7 percent return.

After several years of rapid increases, costs are projected to decline beginning in fiscal 2016, allowing the city to repay the cost of its fiscal 2014 pension amortization while still lowering its overall pension expense.

The city's overall debt burden is high, at 7.3 percent of market value, due primarily to weak real estate values, Fitch reported. Debt appears more manageable on a per-capita basis at $2,095.

The city has limited additional borrowing needs and uses cash for many of its financing needs, the ratings agency reported.

Costs for pension, other post-employment benefits and debt service are a moderate 21 percent of the city’s expenditures, Fitch reported. With 91 percent of its debt to be paid off in 10 years and projected declines in pension costs, the city should be able to absorb likely increases in other post-employment benefits in the near term.

If the burden of those benefits is not reduced, Fitch reported, more of the city's annual budget is likely to be consumed by those costs over the longer term.

(c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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