Weekly Credit Outlook for Public Finance - Dec 18 2014

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

1/15

MOODYS.CO

DECEMBER 18, 201

FEATURE ARTICLESPuerto Rico Legislation Imperils Bond Issuance that Would BoostDevelopment Bank LiquidityPuerto Ricos legislature approved the issuance of bonds to pay back loansmade by the Government Development Bank. The legislature imposedconditions that will delay, and may even prevent, the bond issuance, acredit negative for GDB and Puerto Rico.

2

Nevada Budget Shortfall Erases Gains Made During RecoveryNevada announced a projected budget shortfall of $162 million for the 2015

fiscal year. We expect Nevada to use reserves to fund the shortfall, a creditnegative step backward at a time when most states are rebuilding reserves.

4

State and Local Governments Put Brakes on Traffic Violation Cameras,a Credit NegativeNew Jersey lawmakers failed to renew a law authorizing localgovernments to use red light cameras that served as a revenue generator.This development is credit negative because it further constrainsgovernments ability to implement new revenue streams.

5

New Hampshire State and Local Pension Reforms Upheld by StateHigh Court, a Credit PositiveThe New Hampshire state Supreme Court ruled that increases to state andlocal government employee pension contributions are allowed, a creditpositive that means that state and local governments will not have torefund increased employee contributions.

7

Agreement Eases Colorado River Shortage Risk for Arizona, Californiaand Nevada; Signifies Continuing Efforts to Address Water IssuesCollaborativelyThe lower Colorado River basins major water users signed a non-bindingmemorandum of understanding (MOU) to increase stored water at LakeMead, a primary Colorado River reservoir that serves Arizona, Californiaand Nevada. The MOU is credit positive for municipal water enterprises.

9

New York Casino Sites Named, Credit Positive for Host MunicipalitiesThe New York State Gaming Facility Location Board announced itsrecommendation for the location of three new casino projects in NewYork State, a credit positive for the upstate host communities.

11

RESEARCH HIGHLIGHTS2015 Outlook - US Public Power Electric Utilities: Steady FinancialMetrics Drive Stable OutlookOur outlook reflects our expectation that debt service coverage andliquidity will remain sound, supported by the ability of public powerelectric utilities to raise consumer rates when needed.

2015 Outlook - US Regulated Utilities: Regulatory Support Drives OurStable OutlookOur outlook reflects our expectation that regulatory support will continue

to help utilities recover costs and maintain stable cash flow, even withcompetition from energy-efficiency efforts.

2015 Outlook - US Airports: Change to Positive on Economic Growth,Higher Passenger CountsMore seat capacity on US airlines, combined with continued growth in theeconomy, will push enplanement growth to 3%-4% this year and in 2015,exceeding our previous expectation of up to 2% growth in 2014..

RATING CHANGE HIGHLIGHTSAlaska's Outlook Revised to Negative; Rating AaaThe revision to negative from stable reflects a plunge in oil prices that nowthreatens to rapidly reduce the state's budgetary reserves.

Atlantic City, NJ's GO Placed on Review for Downgrade; Rating Ba1The Ba1 rating on review for downgrade, affecting $244 million, reflectsthe impact of a recently postponed bond sale of $140 million.

Wayne State University (MI) Downgraded; Outlook StableThe downgrade to Aa3, affecting $496.6 million, reflects our expectationof continued negative pressure on key revenue sources.

Kenyon Colleges (OH) Outlook Revised to Stable from Negative; Rating A1The revision, affecting $189 million, reflects improved operatingperformance in FY 2014.

UnityPoints Outlook (IA) Revised to Stable from Negative; Rating A3The revision, affecting $935 million, reflects UnityPoint's improved same-store operating performance.

Baltimore (MD) Conventions Center Hotel Revenue Bonds OutlookRevised to Stable from Negative; Rating Ba1The revision, affecting $293.7 million, reflects the stabilization of thehotel's operating margins and corresponding financial metrics.

Access our moodys.com public finance landing page atmoodys.com/UsPublicFinance

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

2/15

2 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

Puerto Rico Legislation Imperils Bond Issuance that Would Boost DevelopmentBank Liquidity

During its annual session ended on December 12, Puerto Ricos legislature approved the issuance of bondsby thePuerto Rico Infrastructure Financing Authority(PRIFA) to pay back loans made by theGovernmentDevelopment Bank for Puerto Rico(GDB, B3 negative) toPuerto Rico Highway and TransportationAuthority(PRHTA, Caa1/Caa2 negative). The transactions would help maintain GDBs liquidity byrepaying $2.2 billion of principal and interest on the loans. However, the legislature imposed conditionsthat will delay, and may even prevent, the bond issuance, a credit negative for GDB and for Puerto Rico(B2 negative) itself, which relies on the continued liquidity of GDB. To issue bonds, amendments toauthorizing legislation will have to be made when lawmakers reconvene in January.

Authorizing legislation would raise the petroleum products tax by 68% to $15.50 per barrel from $9.25,allowing Puerto Rico to pledge 61% of the total tax, or $9.50 per barrel, to the new bonds (see exhibitbelow). PRIFA is an attractive issuer because it is not legally allowed to restructure debt under abankruptcy-like law that Puerto Rico passed this summer.

EXHIBITPuerto Rico Petroleum Taxes and Pledges

Source: Government Development Bank for Puerto Rico

Puerto Rico Governor Alejandro Garca Padilla on December 12 said that he would sign the bill (HB 2212),even though the legislature added conditions that impede a bond sale. One condition requires that thepetroleum products tax increase be contingent on implementation of a broad tax overhaul, which will befar more complex and time-consuming than the petroleum tax increase alone. Another excised aprovision for annual inflation adjustments to the petroleum tax. A third limits borrowing costs on bondsbacked by the new tax revenues, capping the coupon at 8.5% and requiring an issue price of at least 93cents on the dollar. Depending on the maturity and security features of the bonds, these limits threatento thwart the planned sale, given that investors in Puerto Rico securities have demanded high yields in

recent months.

Amendments removing these provisions could be enacted in the legislative session starting next month,leaving time for a February offering of the PRIFA bonds. GDB President Melba Acosta in a statementunderscored the importance of making the PRIFA bonds attractive to investors. The law already includessome provisions to that end: a general obligation guarantee from Puerto Rico and a stipulation that anyrelated legal proceedings take place in New York City.

If sold, the new petroleum products tax bonds would help sustain liquidity at GDB, which serves not onlyas the central governments fiscal agent, but also as its fund repository. GDB reported total net liquidity of

$6.00 $6.00

$3.25

$9.50

$-

$2

$4

$6

$8

$10

$12

$14

$16

$18

Current Pro forma

$perBarrel

Pledged to 1998 Bonds Other Petroleum Products Tax at HTA PRIFA

Estimated total revenues$444 million

Estimated total revenues$265 million

ed Hamptonice President - Senior Credit Officer

1.212.553.2741

[email protected]

This publication does not announcea credit rating action. For anycredit ratings referenced in thispublication, please see the ratingstab on the issuer/entity page onwww.moodys.comfor the mostupdated credit rating actioninformation and rating history.

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

3/15

3 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

$1.7 billion as of October 31, consisting of $2.1 billion of securities, bank deposits and money marketinstruments, net of securities pledged as collateral. Failure to refinance loans to PRHTA would put GDB ona path toward insufficient reserves at a time when it will face mounting pressure from its own debt-service requirements. Principal payments due on GDBs notes rise to $876 million in the fiscal year ending

June 30, 2016, from $481 million in fiscal 2015.

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

4/15

4 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

Nevada Budget Shortfall Erases Gains Made During Recovery

On December 8, Nevadas Interim Finance Committee announced a projected budget shortfall of $162million for the fiscal year ending June 30, 2015, owing to weak gaming and mining revenues and higher-than-expected school enrollment. We expectNevada(general obligation limited tax Aa2 stable) to use

reserves to fund the shortfall, a credit negative step backward at a time when most states arerebuilding reserves.

Nevada expects to end fiscal 2015 with an available fund balance of $8 million, which is $162 millionbelow the statutorily required minimum of 5% of the $3.3 billion budget and $170 million below whatthe state had previously expected. The state revised revenues downward by $87 million because ofweakness in mining and gaming revenues. The state revised spending upward by $81 million mostly owingto unexpectedly strong growth in school enrollments.

Nevada, like most states, has been slowly rebuilding reserves over the past few years, although Nevadasreserves remain well below their pre-recession peaks (see exhibit below). The last of the 50 US states toexit the recession, doing so in 2011, Nevada was able to get its available fund balance, the sum of theunassigned fund balance reported in the general fund and its rainy day fund, into positive territory in fiscal

2013. However, the new shortfall will erase those gains as the state uses the reserves it built up over thepast couple of years to plug the deficit. The decrease in reserves will cause it to lose ground against peersthat are expanding their financial cushions.

EXHIBIT

Nevadas Available Balances

Note: Available balances are the sum of the unassigned fund balance and the rainy day fund.

Source: Moodys Investors Service

The state revised down gaming revenues by $41.5 million, reflecting that their recovery has not been asrobust as during previous economic recoveries. Gaming win, the revenues that casinos net, was down4.6% in the three months that ended October 2014.

Nevertheless, we still expectLas Vegas, Nevada(Aa2 stable), to outperform struggling regional gamingmarkets. Renewed consumer confidence owing to lower gas prices and increasing payrolls will fuel growthfrom US tourists and Las Vegas will retain its unique position as a destination for overseas visitors. In the2007-09 recession, the state was able to enact revenue enhancements that balanced the budget on atemporary basis, and we expect that the state will again adopt measures to improve its budgetaryposition in the next budgetary biennium.

-6%

-4%

-2%

0%

2%

4%6%

8%

10%

12%

14%

16%

18%

-$150

-$100

-$50

$0

$50

$100$150

$200

$250

$300

$350

$400

$450

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$Millions

Amount, Nevada - left Percent of Total Revenues, Nevada - right axis

Percent of Total Revenues, 50-state median - right axis

ulius Viznerssistant Vice President - Analyst

1.212.553.0334

[email protected]

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

5/15

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

State and Local Governments Put Brakes on Traffic Violation Cameras,

a Credit Negative

On Tuesday,State of New Jersey(A1 negative) lawmakers failed to renew a law authorizing localgovernments to use red light cameras that served as a revenue generator. The day before, theNassau

County, New York(A2 stable), legislature repealed a law authorizing the use of speed cameras nearschools. These developments are credit negative because they further constrain governments ability toimplement new revenue streams at a time when these governments are facing property tax limits, unevensales tax growth and anti-tax sentiment.

Nassau County implemented its speed camera program in July 2014 and immediately met publicresistance. The county rescinded approximately 40,000 speeding violations issued in July and August as aresult of the opposition and subsequently announced that it would scale back the program beforeultimately rescinding it. Net county collections from the cameras, after the vendors contracted share,were $21 million between September and November, indicating that the county would have exceededthe $30 million (1% of total revenues) in speed camera revenue for which it had budgeted in 2015.NeighboringSuffolk County(A3 stable), which had projected only $2.5 million from speed cameras for2015, chose to scrap its plan earlier this month before it had even begun, partially based on the Nassau

experience.

Meanwhile, 25 municipalities in New Jersey had installed red light cameras operated by two privatecompanies as part of the states five-year pilot program beginning in 2008 (see exhibit). In August 2014,the state judiciary tossed 17,000 tickets because one of the companies, Automated Traffic Solutions,failed to deliver them within a set time frame. That same month, the former CEO of the other company,Redflex, was indicted on federal corruption charges. The two events, general public discontent andquestions about the effectiveness of the cameras contributed to the state legislatures decision to let thelaw lapse.

EXHIBIT

New Jersey Municipalities to Abandon Red Light CamerasBrick Township(Aa2) Edison(Aa2 stable) Lawrence Township(Aa3) Palisades Park(Aa3) Springfield (unrated)

Cherry Hill(Aa2 stable) Englewood Cliffs(Aa2) Linden(Aa3) Piscataway(Aa2) Stratford (unrated)

Deptford(Aa3) Glassboro(A1) Monroe Township(A1) Pohatcong Township (unrated) Union Township(Aa2)

East Brunswick(Aa1) Gloucester Township(A1stable)

New Brunswick(A2) Rahway(A1) Wayne(Aaa negative)

East Windsor (unrated) Jersey City(A1 stable) Newark(Baa1 negative) Roselle Park(Aa3) Woodbridge(Aa2)

Source: State of New Jersey Department of Transportation

The cameras in New Jersey typically generated 1%-2% of participating local governments total revenues,an amount significant enough for the mayor ofNewark, New Jersey(Baa1 negative), to lead an effort tokeep the cameras. In 2010, Newark generated $1.4 million from the program, which the mayor said hadincreased to $4 million annually.Brick Township, New Jersey(Aa2), which ended its program in Februaryafter a new administration took office, generated about $1.5 million (1.6% of revenues) last year.

This weeks events came roughly a week afterOhios (Aa1 stable) legislature passed a bill effectivelyeliminating traffic cameras in the state. That bill awaits the governors signature. According to theInsurance Institute for Highway Safety, nearly 500 communities in 23 states have adopted red lightcameras, and 140 have adopted speed cameras, but public frustration is prompting some communities toabandon the programs.

Local governments elsewhere have faced lawsuits over such programs, or referendums to limit them.Before the Ohio legislative action to effectively eliminate traffic cameras by requiring police officers be

obert Weberice President - Senior Analyst

1.212.553.7280

[email protected]

alentina Gomeznalyst

1.212.553.4861

[email protected]

avid Strungisssociate Analyst

1.212.553.7422

[email protected]

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

6/15

6 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

present when a violation takes place, voters in the Ohio municipalities ofCleveland(A1 stable) andMapleHeights(Baa3 negative) took similar action in November votes.

The effectiveness of cameras as a revenue generator often wanes as drivers alter their behavior to avoidtickets. In Nassau, the county executive reported a 70% decline in violations related to speed camerasafter two months of operation. Red light camera revenues, a separate program in operation for a numberof years in Nassau and Suffolk, have remained flat despite the increasing use in both counties.

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

7/15

MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

New Hampshire Pension Reforms Upheld by State High Court, a Credit Positive

On December 10, the New Hampshire state Supreme Court ruled that increases to state and localgovernment employee pension contributions are allowed. The high court reversed a lower court decisionthat the states 2011 implementation of higher employee contributions was partially illegal. Other aspects

of the states pension reforms have been challenged in separate lawsuits that remain unresolved. Thestate high courts decision is credit positive and establishes a clear legal precedent for the state toimplement employee contribution increases for state and local government pensions (see Exhibit 1). Thedecision also eliminates the risk that the pension system would be forced to refund increased employeecontributions, which would have negatively affected state and local government finances.

EXHIBIT 1

New Hampshire Supreme Court Upheld State and Local Employee Pension Contribution ShiftChanges took effect in fiscal 2012

Note: Contributions and contribution rates represent aggregation of all employee types; exclude medical subsidies.

Source: New Hampshire Retirement System Actuarial Valuation

Employees have contributed an extra $159 million to the retirement system as a result of mandatedemployee contribution hikes that took effect in 2012 ($172 million in present value as of June 30,2014) (see Exhibit 2.) The hikes included increases for employees and teachers to 7% from 5% ofsalary, firefighters to 11.55% from 9.3% and police to 11.8% from 9.3%. The ruling eliminates therisk that these contributions would have to be refunded and relieves any additional budgetarypressure from additional costs to the state and local governments. Prior to the increase to employeecontributions, local government annualpension contributions were increasing over 10% annually.Since the reforms, growth in annual contributions has fallen to below 10%, providing somebudgetary flexibility. The states retirement costs decreased by approximately 36%1as a result of thereform.

1 This is the impact of the full reform package and includes the state share of local retirement costs at zero.

0%

2%

4%

6%

8%

10%

12%

14%

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

2010 2011 2012 2013

%o

fCoveredPayroll

$inmillions

Employee Contributions (L) Employer Contributions (L)

Employer Contribution Rate (R) Employee Contribution Rate (R)

homas Aaronssistant Vice President Analyst

1.312.706.9967

[email protected]

ohn Lombardissociate Analyst

1.212.553.2819

[email protected]

icholas Lehmannalyst

1.617.371.2940

[email protected]

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

8/15

8 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

EXHIBIT 2

Employee Contribution Increases Above Previous Requirements Have Amounted to $172 MillionSince Taking Effect

Fiscal Year

General

Employees Teachers Police Fire Total

Total withinterest to

6/30/2014

2012 $23.00 $21.43 $5.98 $2.84 $53.25 $57.37

2013 $22.23 $21.17 $6.04 $2.90 $52.34 $60.77

2014 $22.40 $21.57 $6.23 $3.35 $53.55 $53.55

TOTAL $67.63 $64.17 $18.25 $9.09 $159.14 $171.70

Source: Moodys Investors Service, New Hampshire Retirement System

The high court ruling also confirms that the state legislature has the legal authority to increaseemployee contribution rates for both current and future employees. The court ruled that thelegislature never intended to establish employee contribution rates at previous levels as acontractual right.

New Hampshires(Aa1 stable) fiscal 2013 adjusted net pension liability (ANPL) to revenues of 40.2%ranks 36 of the 50 states and is significantly below the median of 60.3%. State local governmentANPLs are generally larger than the national medians. For example, the cities ofConcord(Aa1),Manchester(Aa2 stable) andNashua(Aa2 stable) have three-year average ANPLs as a percent ofoperating revenues of 2.64 times, 3.36 times and 2.01 times, respectively. These liabilities remain achallenge and are well above the Moodys 2013 national median of 1.16 times operating revenues forall US cities.

Litigation associated with other pension reforms remain unresolved. In addition to the employeecontribution increases mandated in 2011 by House Bill No. 2, the legislation also limited the types ofcompensation that municipalities can consider when determining pension benefits, reducing benefitmultipliers and increasing the numbers of years considered as part of final compensation for

pensions.

House Bill No. 2 reduced the pension systems unfunded liability by approximately $430 million, as ofJune 30, 2011. Because the employee contribution increases had not yet taken effect, this entire amountis associated with accrued liability reductions and represents the amount (as of June 30, 2011) at risk ifthe state loses the outstanding legal challenges to House Bill No. 2.

The other disputed provisions of House Bill No. 2 were stayed by a lower court, pending the outcome atthe state Supreme Court regarding another pension reform measure, House Bill 1645 (2009). HB 1645implemented similar changes for certain employees (teachers). Arguments on this case were heard by thestate high court in November 2014.

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

9/15

9 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

Agreement Eases Colorado River Shortage Risk for Arizona, California and Nevada;

Signifies Continuing Efforts to Address Water Issues Collaboratively

On December 10, the lower Colorado River basins major water users signed a non-binding memorandumof understanding (MOU) to increase stored water at Lake Mead, a primary reservoir on the Colorado River

that serves Arizona, California and Nevada. The MOU is credit positive for lower basin water supplierssuch as the Central Arizona Water Conservation District (CAWCD, unrated) and the Southern NevadaWater Authority (SNWA, unrated) because it decreases the risk of mandated water supply reductions inArizona and Nevada. TheMetropolitan Water District of Southern California(MWD, Aa1 stable) will alsobenefit, though similar mandated reductions are much less likely in California.

Other anticipated beneficiaries are municipal water agencies, includingPhoenix Water Enterprise(Aa2stable),Tucson Water Enterprise(Aa2 stable),Las Vegas Valley Water District(Aa2 stable),Los AngelesDepartment of Water and Water-Power System(Aa2 stable) andSan Diego County Water Authority(Aa2stable).

The MOU calls for Lake Meads water elevation to increase further above 1,075 acre-feet (AF). Arizonaand Nevada would suffer allocation reductions below that mark.

According to the MOU, the three lower basin states (Arizona, Nevada and California) will aim tocollectively store an additional 740,000 acre-feet in Lake Mead by 2017, reducing the likelihood of thewater elevation falling below 1,075 feet. Lake Meads elevation was 1,085 feet as of December 16.

The agreement also serves to avoid the water level falling to 1,000 feet or below, which wouldsignificantly pressure Colorado River water deliveries and potentially trigger a complex reconsideration ofinterstate water rights priority. While the probability of a decline to 1,000 feet in the next several years isremote, initiatives stemming from the MOU could extend that horizon.

Besides Arizonas CAWCD, Nevadas SNWA and Californias MWD, signatories to the agreement includethe US Bureau of Reclamation, the Arizona Department of Water Resources, the Colorado River Board ofCalifornia and the Colorado River Commission of Nevada.

To get to the additional 740,000 acre-feet, CAWCD would contribute 345,000, MWD would contribute300,000, SNWA would add 45,000, and the Bureau of Reclamation would contribute 50,000.

MWD could make its contribution through new conservation programs. While the cost is not specified, itwill likely be approximately $45 million, only 3% of MWDs total annual revenues. Despite the Californiadrought, MWDs willingness to participate in the agreement underscores how much its current, locallystored water is sufficient to continue meeting its delivery demands.

For CAWCD, the cost of meeting its MOU contribution is estimated at just $4.9 million (or 2.3% of 2013operating revenues), where the funds will be used to compensate agricultural districts that receive lowersupply.

SNWA estimates its cost at less than 1% of operating revenues (approximately $1.3 million), coming frominitiatives such as restarting groundwater deliveries to Lake Mead or recovery of banked groundwater inArizona or Nevada.

In addition to the 2017 goals, the MOU looks to generate 1.5 million to 3 million acre-feet of protectionvolume in Lake Mead by 2019. MOU signatories also agree to address urgent needs.

As weve noted in previouspublications,water managers in the lower basin states have long recognizedthe challenge of securing water supplies and taken steps to increase storage, improve infrastructure andstrengthen policies to manage consumption. As a result, Arizona and Nevada receive less than their legal

William Ohnalyst1.415. 274.1739

[email protected]

Michael WertzVP-Analyst

1.212. 553.3830

[email protected]

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

10/15

0 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

allocation of Colorado River water and will likely be able to reach the goals laid out in the MOU withoutsignificant financial or operational impact.

Californias share of Colorado River water will not be reduced under all shortage scenarios identified bythe Secretary of the Interiors 2007 Record of Decision. Instead, Arizona and Nevada would receivereduced allocation starting at 1,075 feet (see Exhibit). However, there is no water shortage allocationagreement in place in the unlikely event that the water elevation falls below 1,000 feet.

MWDs participation in the agreement acknowledges it believes there is a need to continue collaboratingon how to address water issues in the lower Colorado River basin, which has experienced droughtconditions in 11 of the past 15 years.

EXHIBIT

Lake Meads Water Elevation Has Remained Above Mandated Reduction LevelsWater Allocation Reductions Occur at 1,075 feet

Source: US Bureau of Reclamation

1,000

1,050

1,100

1,150

1,200

1,250

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

HeighofLakeMead(ft)

Lake Mead Elevation (ft) , 1984-2014 Shortage Allocation Level (ft)

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

11/15

1 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

New York Casino Sites Named, Credit Positive for Host Municipalities

On December 17, the New York State Gaming Facility Location Board announced its recommendation forthe location of three new casino projects inNew York State(Aa1 stable), a credit positive for the upstatehost communities. The economies ofthe Town Of Thompson(Aa3) inSullivan County(Aa3),the City of

Schenectady(A3 negative) inSchenectady County(Aa1) and Town of Tyre (unrated) in Seneca County(unrated) will benefit from additional employment in the construction and gaming industries. These localgovernments will also benefit from casino host fees, potential for sales tax growth and property tax baseexpansion (see Exhibit 1). However, the long-term economic benefit of the casinos could be muted giventhe competition from the many other casinos throughout the Northeast.

EXHIBIT

Casino Projects Expected to Bring Revenues and Jobs

CountyProjected

Project SizeProjected Casino

Hosting Fees% of 2013

County RevenuesProjectedNew Jobs

% Increasein EmployedLabor Force

Sullivan $1.1 billion $14.7 million 9.4% 2,400 8.1%

Schenectady $300 million $13.1 million 5.5% 1,200 1.7%

Seneca $425 million $6.9 million 12.7% 1,800 11.7%

Source: New York State Gaming Commission; Bureau of Labor Statistics

The Location Board chose from 16 proposals, all of which included estimates for significant job creationand regional economic impact. Montreign Operating Company, LLC expects that its $1.1 billion proposedcasino in Thompson will involve $326 million in spending for the construction of the casino, anticipatedto take 24 months. The company projects 2,400 new jobs (119% of total unemployed county workforce),making the casino the largest employer in the county, and $73 million in new wages once the casinoopens. Capital Region Gaming, LLCs proposal for Rivers Casino & Resort at Mohawk Harbor inSchenectady includes a projected 1,200 new jobs (32% of unemployed) and $50 million in annual payroll,benefits and tips. The proposal for Wilmorite Inc.s Lago Resort & Casino in Seneca incorporatesprojections of 1,200 construction jobs and up to 1,800 casino related jobs (225% of unemployed) at fulloperation.

Host counties will receive direct casino fees in addition to increased job creation and potential sales taxgrowth. The New York State Gaming Commission estimates host fees of $14.7 million for Sullivan, $13.1million for Schenectady and $6.9 million for Seneca. The respective towns and school districts will receivesmaller amounts, but all host municipalities will likely see increases to local property taxes driven by thenew construction and sales tax growth driven first by construction activity and eventually by tourism

generated by the casinos.

According to the casino applications, all three companies assume significant job creation both duringconstruction and once the casinos are operational. However, construction jobs only provide a temporaryemployment boost during the construction phase, however, and do not provide a long-term economicbenefit. Additionally, casino jobs tend to be lower paying and less likely to lead to significant

improvement in overall wealth levels in host communities.

Moodys outlook on theUS Gaming Industry is currently negative, driven by weak revenues, waningdemand and high fixed costs. Gaming revenues, particularly outside ofLas Vegas(Aa2 stable), are down inareas across the country and it remains to be seen if the estimates provided by the Gaming Commissionand the casino companies themselves come to fruition.Four casinos have closedso far this year inAtlantic City,NJ (Ba1 on review for downgrade), due to a weakened brand and regional competition.While the Location Board focused on locating casinos far away from existing tribal casinos in New York,the new casinos will face competition from casinos in Atlantic City, although no new casinos are locatednear the New Jersey border, as well asPennsylvania(Aa3 stable),Connecticut(Aa3 stable) and

alentina Gomeznalyst

[email protected]

ice President - Senior Analyst

[email protected]

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

12/15

2 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

Massachusetts(Aa1 stable), as well as the existing New York casinos. New revenues may also be offset byincreased expenditures for infrastructure improvements and public safety. Significant increases in trafficand tourism will likely require an additional police presence. Host municipalities may also need toimprove existing infrastructure, particularly roads and bridges, in order to accommodate increases in

traffic.

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

13/15

3 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

RESEARCH HIGHLIGHTS

2015 Outlook US Public Power Electric Utilities: Steady Financial Metrics Drive Stable Outlook

Our stable outlook for the US public power industry reflects our expectation that debt service coverageand liquidity in the industry will remain sound, supported by the ability of public power electric utilities toraise consumer rates when needed to recover the costs of generating and distributing electricity. Slowgrowth in demand for electricity will put pressure on utilities to raise electric rates because their fixedcosts will have to be spread out over the same or a lower volume of electricity. Still, the improving USeconomy and another year of low natural-gas prices will help keep electric rate increases moderate.

2015 Outlook - US Regulated Utilities: Regulatory Support Drives Our Stable Outlook

Our stable outlook for the US regulated utility industry for 2015 reflects our expectation that regulatorysupport will continue to help utilities recover costs and maintain stable cash flow, even with competitionfrom distributed generation or energy-efficiency efforts that keep overall demand growth low. The

consistency and predictability of the regulatory environment is a fundamental driver of our outlookbecause it allows utilities to manage their cash flow and capital spending based on expectations foradequate cost recovery.

2015 Outlook - US Airports: Change to Positive on Economic Growth, Higher Passenger Counts

More seat capacity on US airlines, combined with continued growth in the US economy, will pushenplanement growth between 3% and 4% this year and in 2015, exceeding our previous expectation ofup to 2% growth in 2014. Enplanement growth, or the number of passengers using an airport to departon a flight, is important for the airport industry because it often translates into higher parking and airport-terminal concession revenues. Higher revenue provides stronger debt service coverage and in most casesresults in more liquidity.

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

14/15

4 MOODYS WEEKLY CREDIT OUTLOOK: US PUBLIC FINANCE EDITION DECEMBER 18,

RATING CHANGE HIGHLIGHTS

Alaska's Outlook Revised to Negative; Rating Aaa

Dec 16 We revised the outlook for the State of Alaska to negative from stable, following a plunge in oilprices since the start of the state's fiscal year that now threatens to rapidly and significantly reduce thestate's budgetary reserves. The outlook applies to $840 million of general obligation (GO) debt, ratedAaa; $290 million of subject-to-appropriation debt, rated Aa1; and about $870 million of bonds backedby the state's moral obligation that have been issued by the Alaska Municipal Bond Bank and by theAlaska Energy Authority and that are rated Aa2.

Atlantic City, NJ's GO Placed on Review for Downgrade

Dec 11 We placed the Ba1 general obligation bond rating of Atlantic City, NJ on review for downgrade,affecting $244 million. The review for downgrade reflects our view that Atlantic City's recently postponedbond sale of $140 million poses significant budgetary, cash flow and balance sheet risk. If pending revenue

sources do not come in as planned, the city could face a $72 million shortfall, which is a significant 27.6%of the city's budget. The review will consider the city's immediate liquidity challenges and its ongoingcash flow needs relative to obligations. The review will also consider final 2014 financial results and thecitys plans to address the fiscal 2015 budget gap.

Wayne State University (MI) Downgraded; Outlook Stable

Dec 11 We downgraded Wayne State University to Aa3, affecting $496.6 million. The outlook is stable.The downgrade reflects our expectation of continued negative pressure on key revenue sources, includingnet tuition revenue, state funding and a competitive research environment. We expect that this pressurewill continue to strain operating performance, hindering the ability of the university to rebuildunrestricted reserves after a recent spend down for strategic initiatives.

Kenyon Colleges (OH) Outlook Revised to Stable from Negative; Rating A1Dec 12 We revised the outlook for the A1 rating on Kenyon College's revenue bonds to stable fromnegative, affecting $189 million. The outlook change reflects improved operating performance in FY 2014and our expectation that cash flow will remain highly positive and growth in financial resources willoutpace that of peers.

UnityPoints Outlook (IA) Revised to Stable from Negative; Rating A3

Dec 11 We revised the outlook to stable from negative for UnityPoint's Aa3 and Aa3/P-1 ratings onoutstanding debt, affecting $935 million. The outlook change reflects UnityPoint's improved same-storeoperating performance and balance sheet metrics in FY 2013 and into interim FY 2014, as well as ourexpectation that operating gains will continue.

Baltimore (MD) Conventions Center Hotel Revenue Bonds Outlook Revised to Stable from Negative;

Rating Ba1

Dec 11 We revised the outlook to stable from negative for the Ba1 senior and Ba2 subordinate ratings onthe Baltimore (MD) Hotel Corporation's Convention Center Hotel Revenue Bonds, Senior Series 2006Aand Subordinate Series 2006B, affecting $293.7 million. The outlook change reflects the stabilization ofthe hotel's operating margins and corresponding financial metrics, as well as its improved cash flowpredictability. It also reflects our expectation that the hotel's stable operating and financial profile willcontinue.

8/10/2019 Weekly Credit Outlook for Public Finance - Dec 18 2014

15/15

MOODYS.CO

CREDIT RATINGS & ANALYSIS

Michel Madelain

President and Chief Operating Officer

Michael RowanManaging Director, Global Public, Project &Infrastructure Finance

Gail SussmanManaging Director, US Public Finance

John Nelson

Director of Research, Global Public, Project,Infrastructure Finance

Christopher HolmesDirector of Research, US Public Finance

Local Government Ratings

Jack DorerManaging Director, US Public Finance

Naomi RichmanManaging Director, US Public Finance

State Government Ratings

Robert KurtterManaging Director, US Public Finance

Tim BlakeManaging Director, US Public Finance

Healthcare, Higher Education, Not-for-Profits

Kendra SmithManaging Director, US Public Finance

Housing

Kendra SmithManaging Director, US Public Finance

Public Infrastructure

Chee Mee HuManaging Director, Project Finance

EDITORIAL CONTENT

Crystal CarrafielloSenior Vice President, Rating Communications

Robert CoxSenior Editor, Rating Communications

MARKETING & PRODUCT STRATEGY

John WalterDirector, Senior Product Strategist

Sara Harris

Assistant Director, Product Strategist

PRODUCTION

Jason LeeVice President, Production

Lisa MahapatraData Visualization Associate

WEBSITEwww.moodys.com

CLIENT SERVICE DESKSNew York: 1.212.553.1653

San Francisco: 1.415.274.1700

2014 Moodys Corporation, Moodys Investors Service, Inc., Moodys Analytics, Inc. and/or their licensors and affiliates (collectively, MOODYS). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. (MIS) AND ITS AFFILIATES ARE MOODYS CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OFENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODYS (MOODYSPUBLICATIONS) MAY INCLUDE MOODYS CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKESECURITIES. MOODYS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANYESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKETVALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODYS OPINIONS INCLUDED IN MOODYS PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICALFACT. MOODYS PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BYMOODYS ANALYTICS, INC. CREDIT RATINGS AND MOODYS PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGSAND MOODYS PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGSNOR MOODYS PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODYS ISSUES ITS CREDIT RATINGS ANDPUBLISHES MOODYS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY ANDEVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODYS CREDIT RATINGS AND MOODYS PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS FOR RETAIL INVESTORS TO CONSIDERMOODYS CREDIT RATINGS OR MOODYS PUBLICATIONS IN MAKING ANY INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONALADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OROTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH

PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODYS PRIOR WRITTEN CONSENT.All information contained herein is obtained by MOODYS from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as otherfactors, however, all information contained herein is provided AS IS without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a creditrating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODYS is not an auditor andcannot in every instance independently verify or validate information received in the rating process or in preparing the Moodys Publications.

To the extent permitted by law, MOODYS and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special,consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even ifMOODYS or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limitedto: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODYS.

To the extent permitted by law, MOODYS and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses ordamages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, bylaw cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODYS or any of its directors, officers, employees, agents, representatives, licensors or suppliers,arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OROTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODYS IN ANY FORM OR MANNER WHATSOEVER.

MIS, a wholly-owned credit rating agency subsidiary of Moodys Corporation (MCO), hereby discloses that most issuers of debt securities (including corporate and municipal bonds,debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it feesranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MISs ratings and rating processes. Informationregarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC anownership interest in MCO of more than 5%, is posted annually atwww.moodys.comunder the heading Shareholder Relations Corporate Governance Director and ShareholderAffiliation Policy.

For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODYS affiliate, Moodys Investors Service Pty Limited ABN 61003 399 657AFSL 336969 and/or Moodys Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to wholesale clientswithin the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODYS that you are, or are accessing thedocument as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to retail clientswithin the meaning of section 761G of the Corporations Act 2001. MOODYS credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securitiesof the issuer or any form of security that is available to retail clients. It would be dangerous for retail clients to make any investment decision based on MOODYS credit rating. If in doubt youshould contact your financial or other professional adviser.