OREANDA-NEWS. July 13, 2015 Fitch Ratings has affirmed the 'BBB+' rating on the following Monroe County, New York (the county) securities:

--\\$345.1 million outstanding general obligation (GO) and public improvement bonds, series 1996, 2002, 2008A, 2008C, 2009A, 2009B, 2010, 2012, and 2014.

The Rating Outlook is Stable.

SECURITY

All bonds issued after 2011 are general obligations of the county for which the county has pledged its full 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's governing body.

The county has pledged its full faith and credit and unlimited taxing power for debt service on outstanding GO bonds issued prior to 2011. No exemption is made under the tax cap law for debt service on outstanding GO debt; however, the constitutionality of this provision has not been tested.

KEY RATING DRIVERS

STABLE FINANCIAL PROFILE, MARGINAL RESERVES: The county's unrestricted reserve position has historically been very slim, which heightens the county's vulnerability to operational risks. The fiscal 2016 budget may formalize a fund balance policy, which if adhered to would help mitigate Fitch's primary concerns regarding the county's historical operating performance.

STABLE REVENUE FRAMEWORK: Revenue sources are relatively diverse and the county's reliance on economically sensitive sales tax is far lower than other counties in upstate New York. Management has successfully raised revenue without increasing the property tax rate, including increased chargebacks to underlying municipalities and improved procedures for tax lien sales.

WEAK LIQUIDITY: Liquidity is still a weak point, although the nominal amount of the county's annual cash flow borrowing has remained stable for several years and continues to be a manageable percent of general fund revenue.

SOMEWHAT LIMITED EXPENDITURE FLEXIBILITY: The county's largest expenditures are related to sizable mandated social service costs, which limit some of the county's flexibility. The county has succeeded in keeping expenditure growth in line with revenue growth. However, several union contracts have been open for a protracted period of time, which increases concerns regarding expenditure stability.

STABLE ECONOMIC PROFILE: The county benefits from a stable tax base and a diverse economy, with a strong presence of education and health care sectors. County unemployment rates are consistently below state and national levels. Both wealth levels and poverty rates are comparable to state and national averages.

FAVORABLE LONG-TERM LIABILITY PROFILE: The debt profile is characterized by a moderate overall debt burden, low carrying costs, rapid amortization, manageable capital plans, and well-funded state pension plans.

RATING SENSITIVITIES

IMPROVED FISCAL POLICIES: Implementation of and adherence to a formalized fund balance policy, as indicated in the county's preliminary fiscal 2016 budget process, could mitigate many of Fitch's concerns regarding the county's financial operations and potentially justify positive rating action over the medium term.

CREDIT PROFILE

Monroe County is home to Rochester on the southern shore of Lake Ontario in northern New York. The county's 2014 population of 749,857 has remained relatively unchanged over the past decade.

STABLIZED FINANCIAL PROFILE; SLIM RESERVES

The county posted a general fund operating surplus of \\$9 million in fiscal 2014, which erased losses incurred from marginal deficits in fiscals 2012 and 2013. The county's current unrestricted general fund balance of \\$14.6 million remains extremely low at 1.2% of spending.

Early projections for fiscal 2015 are for essentially balanced operations with a marginal variance to either the positive or negative. The fiscal 2015 budget also marks an improvement in the county's conservatism towards revenue assumptions, which have historically tended to be somewhat aggressive. Sales tax revenue is budgeted as a 1.6% increase from fiscal 2014 actual results and gaming tax revenues are budgeted very conservatively, although property tax revenue budgeting continues to be more realistic than conservative.

The county has historically operated its \\$1.2 billion budget at roughly break-even levels, with minor variances to the positive or negative. Fitch's primary long-term concern is with the county's unrestricted reserve position, which has fluctuated between -1% and 1% of spending since at least 1993 with no policy or target level. As such, Fitch would consider the county's efforts to include a formalized fund balance policy with the fiscal 2016 budget, if implemented and adhered to, to be a credit positive.

The county maintains multi-year forecasts, with the latest iteration projecting a cumulative budget deficit of approximately \\$50.8 million for fiscals 2016 and 2017. The county has a track record of outperforming its forecasts, as the county projected a cumulative \\$106.2 million budget deficit for fiscals 2013 and 2014 (actual cumulative result for those years was a \\$6.1 million surplus). Fitch expects management's continued prudent financial practices including strong oversight of expenses, will address future out-year budget gaps.

STABLE REVENUE FRAMEWORK

The county's \\$1.2 billion budget has remained very stable over the past several years, with revenue growth matching expenditure growth. Finances are expected to remain challenged by a high and growing state-mandated social service burden, similar to many upstate New York counties. Nonetheless, the county has demonstrated its ability to control costs through avenues including position vacancy control and labor health care concessions. The county routinely underspends its budget.

The county has not been willing to raise the property tax rate, which has remained unchanged since 2008. However, the property tax levy has increased annually as overall taxable property values increased at a steady, modest rate, uninterrupted by the most recent recession. Management has been able to independently raise other revenues; ensuring revenue growth and expenditure growth are in tandem. The county has tripled the amount of chargebacks to underlying municipalities, for expenses such as the cost of community college and snow/ice removal, since fiscal 2007 (from \\$12.9 million to \\$41.2 million). Additionally, the county has improved its procedures for tax lien sales, generating \\$13.9 million (\\$3.7 million over what was budgeted) in fiscal 2014.

LABOR COST UNCERTAINTY

The county's Social Workers union (about 778 FTE, about 20% of countywide FTEs) contract has been open since 2008. Additionally, the county's contract with the Sheriff's Road Patrol union (about 260 FTE) expired in 2012 and is entering interest arbitration this August. The county does not maintain a reserve for retroactive pay; however, the county has a favorable track record of negotiating cost-effective agreements and prohibiting retroactive pay.

WEAK LIQUIDITY

The county's consistently minimal year-end cash balances and dependence on liquidity borrowing remain a credit negative. The county's cash flow borrowing in fiscal 2015 is expected to be \\$75 million (a manageable 6% of budgeted revenue). The amount of cash flow borrowing has remained unchanged for several years and, if needed, the county retains in borrowable cash outside of the general fund (\\$27.1 million at fiscal yearend 2014). The county's dependence on the capital markets for cash-flow solutions is concerning given the county's below-average credit rating, although management has found success for a number of years utilizing private placements with a local bank.

UPSTATE NEW YORK ECONOMIC CENTER
Monroe County's status as one of upstate New York's key economic centers and third largest population center in the state is a credit strength. The county's economy has diversified away from its historically manufacturing-dominated economy and is now home to a robust healthcare and higher education presence, with the University of Rochester and its associated medical center as the county's leading employer with almost 40,000 employees.

Other leading employers include Wegmans Food Markets, Xerox Corporation, Unity Health System, and Paychex, Inc., with each employing in excess of 3,500 people. Eastman Kodak Company emerged from Chapter 11 bankruptcy in 2013 but has reduced its work force by over 50% over the past three years from 5,129 in 2012 to 2,300 in 2014.

County unemployment is down to 5.2% in March 2015 from 6.2% the year prior, although the improvement was largely driven by loss of labor force outpacing employment losses. Nevertheless, unemployment rates were below state (5.8%) and national (5.6%) averages. They county's wealth levels and poverty rates are comparable to state and national averages.

The county's housing market did not experience a boom or bust through the past business cycle, resulting in continued assessed valuation growth at a moderate pace, up 14.2% since 2008 and a modest 1.2% for 2015.

FAVORABLE LONG-TERM LIABILITY PROFILE
Fitch considers the county's debt burden moderate, with overall net debt per capita of \\$2,441 and 4.5% of market value. Amortization is rapid, with 93% retired in 10 years.

The county anticipates borrowing about \\$80 million every two years as a supplement to its manageable capital improvement plan. Given the county's rapid amortization of debt, Fitch expects that future issuances will be mostly offset by principal retirement and thus is not expected to have a material impact on this credit factor.

The county participates in two state-run cost-sharing defined benefit pension plans, both of which Fitch considers well-funded. The 2014 pension payment represents a low 2.9% of governmental spending. The county has been deferring portions of its pension costs over the past several years, as allowed under state law. Fitch believes that repayment of the deferrals will be at least partially offset by projected declines in current payments, resulting in continued stable and low contribution rates.

The county funds its other post-employment benefits (OPEB) liability on a pay-as-you-go basis as the county is not allowed to pre-fund it under New York State Law. OPEB together with debt service and pension payments account for a low 9% of governmental spending. The county's OPEB liability is moderate, approaching \\$700 million or 1.7% of county market value.