OREANDA-NEWS. Fitch Ratings has affirmed the following Westchester County, NY (the county) ratings:

--$474 million limited tax general obligation (LTGO) bonds at 'AAA';

--$276 million in unlimited tax general obligation (ULTGO) bonds at 'AAA';

--Issuer Default Rating (IDR) at 'AAA';

--$39 million lease revenue bonds, issued by the Dormitory Authority of the State of NY (DASNY), at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The LTGO bonds are payable from a pledge of 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 (the tax cap law). This limit can be overridden annually by a 60% vote of the county board.

The DASNY lease revenue bonds are special obligations of the authority, payable from basic rent payments by the county under a lease agreement. The payments are subject to annual appropriation.

KEY RATING DRIVERS

The 'AAA' ratings are based on the county's stable general fund reserves, strong flexibility to close budget gaps, and low long-term liability burden. The rating on the lease revenue bonds reflects the general credit characteristics of the county and incorporates risk of annual appropriation to make lease payments equal to debt service.

Economic Resource Base

Westchester County is located immediately north of New York City. Its wealthy tax base benefits from the strong regional economy and resident income levels rank well above state and national averages. The county's unemployment rates have historically trended below state and national averages.

Revenue Framework: 'aaa' factor assessment

The county's independent legal ability to raise property tax and fee revenues is considerable. The county legislature can override the tax levy cap with a 60% majority and increase fines and fees at will. Fitch expects revenue growth, which has exceeded the rate of inflation, to remain relatively stable based on current trends in the local economy.

Expenditure Framework: 'aa' factor assessment

Expenditure growth should remain in line with the state's contribution to mandated social service costs and expected spending on the county's work force. The county has solid expenditure flexibility and carrying costs for pension, debt and other post-employment benefits (OPEB) are moderate.

Long-Term Liability Burden: 'aaa' factor assessment

Long-term debt and pension liabilities are low compared to the county's resource base. The county's future borrowing plans are modest and the pension plans are well funded.

Operating Performance: 'aaa' factor assessment

Exceptionally strong gap closing ability is afforded by the county's highly stable reserves, which in combination with its budgetary flexibility provide a satisfactory cushion relative to expected revenue volatility. The county maintained stable general fund reserves throughout the recession and recovery, primarily through expenditure control.

RATING SENSITIVITIES

Reserve Maintenance: The rating is sensitive to the maintenance of reserves sufficient to offset expected levels of revenue volatility in an economic downturn.

CREDIT PROFILE

The county has a diverse tax base that combines wealthy residential areas, several major retail developments, and numerous corporate headquarters, including IBM and Pepsi. Recent growth in biotech, health care and additions to the county's extensive retail base are adding to the economic profile. Assessed valuations increased significantly from 2014 through 2016 after declines from 2008 through 2013.

Revenue Framework

The county has significant legal ability to raise local revenues. Fitch expects natural revenue growth which has historically been strong to moderate slightly given current sales tax trends. Property taxes are the largest source of revenue at 31%, followed by sales taxes at 28%, and intergovernmental revenues at 24%.

Fitch believes that growth prospects for revenue are solid based on the strong growth trends in the local economy. Revenue growth for the county exceeded the level of inflation over the past decade.

Sales tax collections grew steadily from 2010 through 2014, reflecting economic recovery. Sales taxes dipped in fiscal 2015 by.5% and the county projects growth of 1% for 2016 based on year to date trends. The recent sluggish sales tax collections are largely attributable to low gas and energy prices.

The county legislature has ability to override both the county Executive Budget and the state tax cap which provides substantial legal ability to raise revenues. The county enacted formal Act 169-2010, that sets the property tax levy to $548 million, although the county legislature may amend this policy during the annual budget process with a super-majority vote. New York State law requires property tax revenue increases be limited to the lesser of CPI or 2% annually, unless a supermajority of the local governing body vote for a larger increase.

Additionally, the county has the ability to implement departmental revenues, fees and other local taxes. Recently, the county has seen increases in the mortgage recording, auto use, and hotel occupancy taxes.

Expenditure Framework

Expenditure growth is expected to remain more or less aligned with revenue growth based on current growth trends and the state's role in supporting funding for mandated county services. Typical of most New York counties, the majority of the county's expenditures include public safety, social services, transportation, and health services. Approximately one third of the county's annual expenditures are for social services and economic assistance. Fitch expect growth in these costs to moderate due to the state cap on Medicaid cost increases and other initiatives including enhanced federal medical assistance reimbursements which provide some relief from mandated services.

Salaries and benefits account for over one third of the general fund budget and most employees are unionized. If a contract expires, New York law requires that the provisions in the prior labor contract be enforced and not altered until a new contract is ratified. All contracts are currently expired and the prior contracts included modest salary increases. The majority of the contracts expired in December 2015, except the Civil Service Employees Association (CSEA) which represents 2,888 or approximately two-thirds of the county's employees, expired in Dec. 31, 2011. All of the unions except for the CSEA employees contribute to healthcare costs. Currently, the county and the CSEA have completed fact-finding but remain at an impasse in their negotiations. The rest of the contracts are expired and only public safety contracts are subject to binding arbitration which account for 25% of the county's total 4,562 employees. The pace of spending growth for personal services is likely to remain in line with expected revenue growth, given anticipated expenditure reductions associated with employee salaries and benefits as the county recognizes savings from the separation incentive offered in 2015.

Expenditure flexibility is solid. Carrying costs for debt service, pension and OPEBs costs are moderate, accounting for 12.1% of general fund expenditures in fiscal 2015. Post-retirement costs have remained relatively stable, despite the county's practice of amortizing a portion of its annual pension payment increase each year since 2012. Each year's deferral must be amortized over 10 years.

Management's ability to adjust the size of the workforce during economic downturns is strong, but management can only adjust wages and benefits through contract negotiations. In the absence of current labor contracts, the county manages labor costs through vacancies, attrition and the utilization of separation incentives which were offered in 2010 and 2015.

Long-Term Liability Burden

The county's long term liability burden is low in relation to its wealthy tax base, with unfunded pensions and overall debt accounting for 5.1% of personal income or 2.7% of market value. The county's future borrowing plans are modest as forecast in the charter-mandated five-year capital planning process. Amortization of direct debt is rapid with 66% of principal scheduled to be retired in 10 years.

The county contributes to the state's well-funded defined benefit retirement systems. The county has elected to amortize the maximum allowable annual pension contribution from fiscal 2013 through 2016 under the state pension stabilization program. The pension plans are well funded and all amortized payments will be retired within ten years. The ratio of combined pension assets to liabilities is reported as 98%. When adjusted by Fitch to a 7% discount rate it is 93% as of March 31, 2015. The unfunded actuarial accrued liability for OPEBs is $1.9 billion, or 2.8% of personal income.

Operating Performance

The county has strong financial resilience based on Fitch's belief that the county would use a combination of its solid revenue and expenditure flexibility and general fund reserves to offset the potential impact of a moderate recessionary revenue decline. The county has maintained available general fund reserves of about 8% of general fund expenditures since 2009.

The county maintained remarkably stable reserves throughout the most recent economic downturn and recovery despite a self-imposed limit on the property tax levy since 2012. The fiscal 2015 budget aggressively forecast a 5% increase in sales tax revenue. Due to low gas and energy prices, total collections were $22 million (4%) below budget. The county minimized the effects of the shortfall by holding positions vacant and implementing a separation incentive as well as other expenditure reductions which resulted in a nominal draw on general fund balance.

The county anticipates additional salary and benefit savings in 2016 as it recognizes the savings from the separation incentive implemented in 2015. Again in 2016, the budget assumed an aggressive 5.1% increase in sales tax revenues. The projection has been adjusted downward to 3% to reflect year-to-date collections that are $11 million below budget. The county anticipates closing the budget gap with $15 million in unbudgeted one-time revenues from the sale of a county property and a reduction in expenditures. Overall expenditures are currently tracking below budgeted estimates. Fitch believes that the county has satisfactory budgetary flexibility to ensure stable financial operations and the maintenance of sound financial reserves through its demonstrated willingness to manage expenditures.

The county annually issues tax anticipation notes (TANs) to provide cash flow prior to the property taxes being collected. In February 2016 the county issued $105 million in TANs which were paid off in May, once property taxes were collected. The county's audited year end cash levels improved slightly in 2015 but have remained relatively narrow.