Summary: .

Troy, New York; General Obligation

Primary Credit Analyst:

Lindsay Wilhelm, New York 212-438-2301; lindsay_wilhelm@standardandpoors.com

Secondary Contact:

Kate Hackett, New York (1) 212-438-7535; kate_hackett@standardandpoors.com

Table Of Contents

Rationale

Outlook

Troy Municipal Assistance Corp. Related Criteria And Research

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Summary:

Troy, New York; General Obligation

Rationale

Standard & Poor's Ratings Services raised its issuer credit rating (ICR) on Troy, N.Y. one notch to 'A-' from "BBB+' based on its opinion of the city's financial stability over .the past five fiscal years. The outlook is stable.

The rating further reflects our view of the city's:

• Adequate income levels and property values;

• Strong total general fund balance but adequate unreserved general fund balance;

• Limited revenue-raising flexibility; and

• Outstanding operational debt and high fixed costs, including pension and other postemployment benefits (OPEB).

Troy is in Rensselaer County (AA-/Stable), just eight miles northeast of Albany, N.Y. (AA-/Stable). It is home to multiple higher education facilities, including Rensselaer Polytechnic Institute; Hudson Valley Community College; and Russell Sage College, as well as the Samaritan Hospital Nursing School. Several redevelopment projects are in progress, including warehouse rehabilitations; a new Dinosaur Bar-B-Que restaurant; student housing projects; and

.. publicly financed roadway, riverfront access, and underground parking projects. Property values, though somewhat misleading due to the large number of tax-exempt properties, have remained steady: They are, in our view, an adequate $40,729 per capita. While the city has not experienced a significant number of appeals, it is now in the process of a full property revaluation, which it expects to complete over the next three years. Income levels are, in our opinion, an adequate 70% of the D.ational average. Unemployment, which averaged 8.9 %in 2010, has trended slightly above the state's rate but below the nation's rate.

Thecity's financial position has remained, in our opinion, stable over the past five fiscal years. The city finished fiscal 2009 with a deficit of$2.0 million on expenditures of $62.7 million; management attributes the deficit to capital spending. Total general fund balance, as of fiscal year-end 2009, was $14.9 million, or, in our view, avery strong 24% of expenditures. Unreserved fund balance was $1.3 million, or, in our opinion, an adequate 2.1 % of expenditures. The city's $13.6 million of reserved general fund balance consists primarily of an $8.4 million debt reserve, which the city is required to maintain under the amended Financial Control Act of1994. The remaining $4.4 million is a capital reserve.

Standard & Poor's I RatingsDirect on the Global Credit Portal I March 31,2011

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For fiscal year-end Dec. 31,2010, management reports that sales and mortgage recording taxes came in under budget but that positive health care cost variances arid a $2.4 million property sale should at least offset the difference. The city collects and remits property taxes on behalf of the county and the school district, and it is

. working on those adjustments before closing its books for fiscal 2010. The city must make the school district, along

" with its own water and sewer special revenue funds, whole for uncollected taxes and rents. It is not required to do so for the county.

Summary: T1'OY, New York; General Obligation

Leading revenue sources include property taxes (32%); state aid (26%); and nonproperty taxes, including the city's share of the county sales tax (23%). The New York State Constitution limits the city's property taxing power to 2 % of its five-year average full valuation. As of December 2010, the city was at 87% of its constitutional tax margin, limiting its continued revenue flexibility. In addition, while the state provides aid to the city in an amount equal to at least 1.5x debt service coverage, the aid is subject to appropriation; the state's budgetary needs could pressure the aid.

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The city has balanced its fiscal 2011 budget with the use of $505,000 of general fund balance, While it has not had to implement any layoffs or furloughs, the city has realized some cost savings through debt refinancing, pension cost amortization, and attrition.

Standard & Poor's considers Troy's financial management practices" good" under its Financial Management Assessment (FMA) methodology, indicating financial practices exist in most areas but that governance officials might not formalize or regularly monitor all of them.

The city'S overall net debt burden is, in our view, a low-to-moderate $1,293 per capita, or 3.2 % of market value. A majority of the city's debt outstanding is operational debt issued in 1996 and 1997. Debt service carrying charges are, in our opinion, a low 7.6% of governmental expenditures. Amortization is, what we consider, above average with officials planning to retire 84% of debt outstanding over the next 10 years and 98% over the next 20 years.

The city has elected to amortize a portion of pension cost increases for a period of up to 10 years; otherwise, the city contributes its full annual required contribution (ARC). Pension costs in 2009 represented 5.5% of total governmental expenditures. The city also provides OPEB; which it funds through pay-as-you-go financing. As of fiscal year-end 2009, the city's OPEB ARC was $12.5 million, or 14.4% of governmental expenditures, of which it contributed $4.9 million. Combined debt service; pension; .and OPEB fixed costs, assuming the full ARC, totaled 27.8% of expenditures in fiscal 2009, putting additional limits on the city's budgetary flexibility.

Outlook

The stable outlook reflects Standard & Poor's opinion that the city will likely be able to manage its budgetary challenges and maintain sufficient reserves. Ongoing revenue pressures and fixed costs could limit the city's budgetary flexibility. A failure to maintain structural balance or a significant drop in reserves could likely lead to our lowering the rating.

Troy Municipal Assistance Corp.

The New York State Legislature established the Troy Municipal Assistance Corp. (MAC) (AiStable) in 1995 to provide market access for Troy. The city was in severe fiscal crisis with an accumulated operating deficit of $20.0 million, or 52% of budget, at Dec. 31, 1995, despite funding a $10.5 million operating deficit in fiscal 1992 with certificate of participation proceeds. Legislation specifically prohibits the city from filing for bankruptcy while any MAC bonds are outstanding.

The MAC board consists of five members: three appointed by the governor, one appointed by the senate majority leader, and one appointed by the speaker of the assembly. The overall MAC structure is similar to legislation drafted for New York City in the 1970s, reflecting the state's relatively long history of aiding localities in fiscal distress. The

Summary: Troy, New York; General Obligation

MAC has financial oversight powers; and it uses New York City's MAC staff to oversee Troy -- including a review of the city's audits, budgets, and financial plans -- and report its findings to appropriate state officials. The board terminated Troy's emergency period on June 22, 1999; this limits the supervisory board's role in approving the financial plan, city contracts, and proposed borrowings. The board is obligated to review and monitor the city's financial operations and plans, and the board can reinstate the emergency period pursuant to statute.

• USPF Criteria: GO Debt, Oct. 12, 2006

• USPF Criteria: Key General Obligation Ratio Credit Ranges - Analysis Vs. Reality, April 2, 2008

Related Criteria And Research

Complete ratings information is' available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.corn. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

Standard & Poor's I RatingsDirect on the Global Credit Portal I- March 31,2011

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