OREANDA-NEWS. Fitch Ratings has affirmed the 'AAA' rating on the following Dormitory Authority of the State of New York (DASNY) bonds:

--$370 million employer assessment revenue bonds series 2013A (federally taxable);
--$73 million pledged assessment revenue bonds series 2010A (federally taxable).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by mandatory annual assessments by the New York State workers' compensation board on employers statewide. Debt service is payable from the first monies received from the employer assessments prior to any other use.
The series 2010A bonds (final maturity in 2020) have a prior claim; Fitch does not make a rating distinction due to the small amount of debt issued in 2010, the closed lien, and strong rate covenant provisions.

KEY RATING DRIVERS

SOLID STATEWIDE PLEDGED REVENUE BASE: Workers' compensation insurance is mandatory for nearly all employers in New York State, with steep penalties for non-compliance. This requirement provides a stable base of secured revenues and supports very high collection rates.

STRONG BONDHOLDER PROTECTIONS: Bondholders have a priority security pledge of assessments, with first dollars received transferred to the paying agent for debt service. Pledged revenues are deposited in a segregated account and cannot be used for general state purposes. The state covenants not to materially impair the ability of the workers' compensation board to levy assessments.

HIGH REQUIRED COVERAGE LEVELS: The employer assessment rate must be calculated annually to provide for a minimum of 2x coverage of debt service. The rate can be reset mid-year if needed. There are no restrictions on the rate or amount of employer assessments. Total issuance under the 2013 resolution is limited to a maximum of $5.45 billion, and by a 2x additional bonds test.

WEALTHY ECONOMY LINKED TO FINANCIAL SERVICES: New York's economy is broad, with substantial wealth and resources. The financial activities sector is significant to the state's economy and finances, although it is prone to above-average cyclicality.

RATING SENSITIVITIES

The rating is sensitive to any challenges to the smooth functioning of the workers' compensation rate-setting and collection process as well as any fundamental changes in the state's economy that could materially affect collections of employer assessments.

CREDIT PROFILE

The credit quality of the employer assessment bonds is driven by the ability of the statewide employer base to pay the single unified assessment rate set by the workers' compensation board. New York has had a mandatory workers' compensation system in place since 1914. The goal of workers' compensation reforms (and the related bonding programs) is to reduce the volatility and, ultimately, the cost of workers' compensation insurance coverage.

With the authorization of the 2013 employer assessment revenue bond program, and as part of workers' compensation reform, the state transitioned to a unified annual assessment to be paid by employers statewide. Previously, bondholders were directly exposed to the more limited ability of the workers' compensation insurance provider base to pay an assessment rate set by the board for the special disability fund (SDF). The unified assessment is levied on employers and insurance providers, although the assessment is still paid by insurance providers as collection agents.

STRONG PLEDGED REVENUE BASE

Workers' compensation insurance is mandatory for nearly all employers in the state, with steep penalties for non-compliance. This results in assessment revenues that are of high quality, with strong historical collections. Collections have been stable, even through the transition from multiple assessments in 2013 to the unified assessment in 2014, when collections totaled $1.1 billion, well-above the $893 million projected at the time of issuance of the 2013 bonds. Collections remain below the 2013 level due to the closure of a fund as part of the 2013 reform legislation and a decision not to assess for that fund in 2014 as the board considers its needs going forward.

The unified annual assessment rate is based on insurance premium rates. For 2014, premium was composed of 48% private insurance carriers, 33% New York State Insurance Fund (SIF), and 19% self-insurers. Insurers are regulated by the New York
State Insurance Department to ensure their solvency and must make assessment payments in order to maintain their insurance license. The SIF is a self-supporting entity of the state, created in 1914. It acts as a residual workers' compensation insurance carrier.

Current coverage is very strong, with 2014 assessments equaling 24x maximum annual debt service. This coverage reflects the high level of assessments needed for funding operating disbursements.

SIGNIFICANT BONDHOLDER PROTECTIONS

The workers' compensation board covenants that the total unified annual assessment will be at least 2x aggregate debt service plus associated costs. There exists regulatory authority to do mid-year rate adjustments if necessary, and a requirement that revenues be reviewed for adequacy mid-year. There are no restrictions on the rate or amount of employer assessments.

The chair of the workers' compensation board is required to deposit all pledged revenues into a segregated assessment receipts account held by the state's commissioner of taxation and finance. The commissioner may not transfer any amounts on deposit in the assessment receipts account for any purpose, including other needs of the workers' compensation board, until after the full year's debt service requirement has been set aside with the trustees. There is no requirement for appropriation of funds.

The state covenants not to materially limit the duties of the board, the department of taxation and finance, and DASNY under the bond resolutions and financing agreements, or to impair the rights or remedies of bondholders. It also covenants not to impair the board's right or obligation to impose and collect assessments needed to pay debt service. The state may enact legislation to change assessments, and Fitch notes that it has done so since the 2010 bonds were issued, including with the 2013 reforms, but only so long as bondholders are protected.

DETAILED COLLECTION MECHANISMS

The employer assessment is the direct payment obligation of each affected employer, with insurance carriers, the SIF and group self-insurers having collection obligations for their policyholders' payments and individual self-insurers and public self-insurers remitting directly.

The employer assessment amount is due and payable in quarterly installments by the SIF (on behalf of its insureds) and self-insured employers, and annually by employers covered by private insurance carriers (upon policy renewal), with quarterly payments by the insurers. The assessment rate will be set by November 1st each year, and the first quarterly payment is due by the following April 30. Debt service is payable on June 1 (interest) and Dec. 1 (principal and interest), providing ample time for funds to accumulate. The workers' compensation board expects relatively stable collections throughout the year.

Enforcement of collections is enhanced by the ability of the workers' compensation board to offset amounts owed by withholding payments due to insurers or employers by it and other components of the state, including state aid. Enforcement mechanisms were strengthened with the 2013 reform legislation.

VOLATILE FINANCE SECTOR ANCHORS WEALTHY ECONOMY

New York's economy is characterized by strong wealth levels and considerable breadth, although there is volatility inherent in the important financial services industry. In contrast to previous downturns, the state's employment decline in the last recession was notably less severe relative to the nation as a whole and relative to the state's experience in prior recessions.

New York's employment growth in the recovery has been very steady, ranging from 1.4% to 1.6% annually between 2011 and 2014; the state surpassed its pre-recession employment level in Sept. 2012, and employment is now 4.6% higher than the previous employment peak, in April 2008. Steady gains continue in 2015, with August 2015 year-over-year employment up 1.8% in New York, below the 2.0% U.S. growth rate. The state's unemployment rate was below the nation's before and during the recession; however, the state's unemployment rate has exceeded the nation's since 2012. Most recently, August 2015 unemployment was 5.2% in New York, compared to 5.1% nationally.

ADDITIONAL AUTHORIZATION REMAINS

The 2013 reform legislation added new authority for DASNY to issue up to $900 million of bonds to transfer to third party insurers workers' compensation claims liabilities associated with the unmet obligations of self-insured employers. The total program cap established in the 2013 resolution is the sum of this $900 million and the $4.55 billion previous cap related to the SDF; the 2010 and 2013 bonds count against this cap. The financing program is intended to reduce the volatility and cost of workers' compensation insurance coverage, and actual issuance under the program will depend on the extent of opportunities to do so under the authorization.

DASNY is one of the state's main issuers of debt and a key player in the state's overall financing program.