OREANDA-NEWS. February 11, 2016.  Fitch Ratings affirms the following Ulster County, NY (the county) public improvement bonds:

--Approximately \\$48.69 million series 1999 and 2012 at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from the county's full faith and credit and taxing power, subject to a 2011 state statute limiting property tax increases to the lesser of 2% or an inflation factor (tax cap law). This limit can be overridden by a 60% vote of the county legislature.

KEY RATING DRIVERS

STABLE ECONOMIC PROFILE: The county benefits from its proximity to the New York City metropolitan region and Albany, and a stable economic base centered on tourism, the State University of New York (SUNY) New Paltz and agriculture.

STABLE FINANCIAL OPERATIONS: Management is financially conservative, proactively reducing expenditures over the last several years. Fitch expects the county's financial profile to remain sound with adequate reserve levels despite budgeted use of fund balance.

MODEST LONG-TERM LIABILITY POSITION: The county's low overall debt burden is expected to decline due to limited capital plans and above-average debt amortization. Pension and other post-employment benefits (OPEB) are manageable.

RATING SENSITIVITIES
CHANGES IN FINANCIAL OPERATIONS: Fitch expects Ulster County to maintain stable financial operations including the maintenance of adequate financial flexibility. A decline in the county's satisfactory general fund balance could negatively impact the county's rating.

CREDIT PROFILE
Ulster County is located in the east central portion of the state in the Catskill region, approximately 90 miles from New York City and Albany. The 2010 Census reported population of 182,493, a 2.7% increase from the 2000 Census.
DIVERSE ECONOMIC BASE

The county economy is fairly diverse with a strong and growing tourism sector. The county is home to Woodstock, a large art and cultural center, and the Catskill and Shawangunk Mountains, which provide recreational activities. Agriculture is also an integral component of the economy. The county is the state's largest producer of fresh market apples and sweet corn. In addition, horse breeding has become a sizable industry. The county reports growth in hotel and tourism including multiple new resort developments planned.

New York State is a major employer, providing economic stability. The State Correctional Department operates four major detention facilities in the county employing approximately 1,745 workers. Additionally, the State University at New Paltz with approximately 8,250 students employs approximately 1,500 persons.

Historically, the county's unemployment rate has been below state and U.S. rates and was 4.3% in November 2015, down from 5.1% November 2014, below the state and U.S. rates of 4.7% and 4.8%, respectively. The improvement year over year was due to a slight (0.8%) growth in employment outpacing a contraction (-0.5%) in the labor force.

REDUCTION IN CONTINGENT LIABILITIES
Prudent financial practices including proactive management of expenses and conservative budgeting have produced stable financial operations and reserve levels. In 2013, the county reduced its contingent liabilities through the sale of the county-owned nursing home (the Golden Hill Health Center) and increased revenues to the county resource agency which eliminated the county's annual net service fees (approximately \\$2.5 million).

The county has a goal to maintain general fund balances of 5% to 10% of general fund spending but plans to utilize excess reserves to fund one-time capital expenditures.

RESERVES TO REMAIN ADEQUATE
The county had a \\$4.38 million draw on general fund balance in 2014 to fund capital needs including public safety computer upgrades and road improvements.

The 2015 adopted budget appropriated \\$20 million in fund balance for one-time capital infrastructure projects including road improvements. Based on unaudited results, there will be a \\$7 million general fund balance draw. Management conservatively budgeted for expenditures and reported significant savings in salaries and benefits through employee attrition. The projected fund balance is approximately \\$51.4 million, 17% of budgeted general fund expenditures. The county's police labor contracts have been open since Dec. 31, 2009. While this uncertainty causes some credit concern, Fitch expects the budgetary impact to be manageable because any increases are expected to be a small portion of government spending.

Reliance on sales tax receipts make retention of satisfactory reserves an important rating consideration. Sales tax is the primary source of revenue, representing 39.7% of total general fund revenues (62% of local tax revenue). Sales tax rates are controlled by the state legislature, with periodic extensions required.

The 2016 \\$285 million general fund budget is a 4.3% reduction from the 2015 adopted budget and includes a \\$16 million general fund balance appropriation. For the second consecutive year, the county lowered the property tax levy by 1% and assumed relatively flat sales tax revenues compared to the 2015 budget. The county established a tax stabilization reserve in 2014 to offset future tax increases, unforeseen increases in pension costs and reductions in state aid. This reserve is outside of the general fund and provides \\$2 million (approximately 1% of general fund spending) for additional financial flexibility. Based on past results, Fitch believes the budget assumptions are conservative and management will maintain adequate reserve levels.

MANAGEABLE DEBT AND PENSION COSTS

The county's credit profile benefits from low overall debt, modest future borrowing and a well-funded state pension plan. Overall debt is \\$1,382 per capita and 1.4% of market value. Fitch expects debt levels to decrease given above-average amortization and modest future capital plans. The 2016-2020 capital improvement plan anticipates \\$108.6 million of expenditures, focused on public health and safety, education, culture and recreation and general government, the majority to be funded by state and federal contributions.

The county participates in the New York State and Local Employees Retirement System (ERS), a cost-sharing multiple-employer defined benefit pension plan. As of March 31, 2014, ERS was well funded at 84% assuming a 7% return. The county contributes the full amount of its required contribution annually, equal to approximately 4.9% of government fund spending for 2014. The county has not participated in the pension smoothing option provided by the state, which Fitch views positively. Pension payments are expected to remain manageable in future years, assisted in the long term by the elimination of 300 nursing home positions.

The county will continue to fund its OPEB liability on a pay-go basis as there is no authority under present state law to establish a trust account or reserve fund for this liability. As of Dec. 31, 2014, the county's OPEB liability totalled \\$127.9 million. Pay-go costs are equal to approximately 1.3% of government spending. Total carrying costs, inclusive of debt service and pension and OPEB costs, equalled a low 10.4% of spending in 2014.