DASNY mental health services facilities improvement revenue bonds series 2010A rated 'A+' by Fitch Ratings

Dormitory Authority of the State of New YorkFeb 20 2010

Fitch Ratings assigns an 'A+' rating to the following Dormitory Authority of the State of New York (DASNY) mental health services facilities improvement revenue bonds:

--$245,375,000 series 2010A.

The bonds are expected to sell via negotiation the week of Feb. 22, 2010.

In addition, Fitch affirms the following ratings:

--$3.5 billion in outstanding DASNY mental health services facilities improvement revenue bonds at 'A+'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Bond payments require annual state legislative appropriation. Appropriation debt plays a prominent role in the state's overall debt structure; only 7% of state debt is general obligation.

--Payment is made through a sound flow of funds structure. Available receipts amply cover debt service, and there is a history of state support for mental health services.

--The state's economy is broad, with substantial wealth and resources, although the health of the state's economy and finances is closely linked to the cyclical financial services industry.

--Strong financial planning and reporting practices, including quarterly financial plan updates, allow the state to stay abreast of changing conditions, although this credit strength is offset by the state's historical tendency to rely on nonrecurring measures rather than sustainable budget solutions to address revenue weakening in downturns. The state's current financial position is strained.

--New York's debt burden is above average but still in the moderate range.

KEY RATING DRIVERS:

--General credit quality of the state, upon which this rating is based;

--Continued solid coverage of debt service by available receipts.

SECURITY:

The bonds are secured by annual state legislative appropriations for debt service from amounts in the mental health services fund, which is held jointly by the commissioner of taxation and finance and the state comptroller.

CREDIT SUMMARY:

The 'A+' rating for the mental health bonds is based on the credit quality of the State of New York (general obligations rated 'AA-' with a Stable Outlook by Fitch), as the bonds are secured by annual state legislative appropriation. Subject to this appropriation and pursuant to a financing agreement between DASNY and the department of mental hygiene, the state makes annual payments for debt service from patient care income and payments from voluntary agency facilities that are deposited in the mental health services fund. The rating for the bonds further reflects the state's commitment over many decades to providing various types of mental health services, many of which are required by court mandates. Mental health bonds issued under the second resolution adopted in 2003 have a claim on moneys subordinate to that of bonds issued under the prior resolution; however, the budget includes a single appropriation for all debt, and Fitch does not make a rating distinction between the liens.

In fiscal 2009, receipts from patient care income and payments from voluntary agency facilities totaled $3.3 billion, 94% of which was Medicaid reimbursements. Under a detailed flow of funds, revenues are committed first to debt service with remaining revenue flowing to the mental hygiene patient income account to support the costs of providing services. Maximum annual debt service (MADS) is about $349 million in 2010.

For more information on the state of New York, see the Fitch rating action commentary 'Fitch Rates New York State's $448MM GOs 'AA-'; Outlook Stable' dated Feb. 19, 2010 and available on Fitch's web site at www.fitchratings.com.

Applicable criteria available on Fitch's website at www.fitchratings.com:

--'Tax-Supported Rating Criteria', dated Dec. 21, 2009;

--'U.S. State Government Tax-Supported Rating Criteria', dated Dec. 28, 2009.