NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has assigned an 'AAA' rating to the following bonds to be
issued by the Monmouth County Improvement Authority, NJ (the MCIA):
--$2,725,000 wastewater treatment facilities lease revenue refunding
bonds, series 2014A;
--$6,970,000 wastewater treatment facilities lease revenue refunding
bonds, federally taxable series 2014B.
The bonds will be sold via negotiation on or about August 12. Proceeds
will refund all of the MCIA's outstanding wastewater treatment
facilities lease revenue refunding bonds, tax-exempt series 2005A and
wastewater treatment facilities lease revenue bonds, federally taxable
series 2005B. The refunding is projected to yield an aggregate net
present value savings of approximately $345,950 or 3.8% of refunded par.
In addition, Fitch affirms the 'AAA' rating on the county's $495.3
million outstanding GO bonds and $370.2 million outstanding MCIA revenue
The Rating Outlook is Stable.
The bonds are secured by basic lease payments made by the city of Asbury
Park, subject to annual appropriation. The bonds are also
unconditionally and irrevocably guaranteed by Monmouth County (the
county) pursuant to a guaranty resolution. The county's obligation to
make payments under the guaranty is a direct and general obligation of
the county, backed by the levy of ad valorem taxes on all taxable
property within the county without limitation as to rate or amount.
KEY RATING DRIVERS
STABLE FINANCIAL POSITION: County general fund (or current fund) reserve
levels remain solid and liquidity is strong. Conservative budgeting and
financial management has allowed for relatively stable financial results
over an extended period. Operations are largely funded from property
taxes which are fully guaranteed by underlying municipalities.
FAVORABLE ECONOMIC PROFILE: The county's economic profile is driven by
its favorable location within the greater New York metropolitan area and
expansive beachfront. High income levels, low poverty, and a
comparatively stable population and housing market are strengths for the
county, somewhat tempered by its exposure to seasonal leisure activity.
MANAGEABLE DEBT: County debt levels are manageable and rapidly
amortized. Future borrowing plans are manageable and capital needs are
largely related to discretionary projects. Carrying costs including debt
service, pension and other-post employment benefits (OPEB) remain an
affordable component of the budget.
SHIFT IN FINANCIAL PERFORMANCE: Projections for fund balance use in 2014
are higher than previously anticipated, largely reflecting continued
revenue weakness and diminished expenditure reduction alternatives.
Reserves are expected to remain sound at year end; however, any sizable
decline of ending fund balance going forward could signal a shift in the
county's commitment to fiscal stability and could pressure the 'AAA'
Monmouth County is located along the northern Atlantic shore of New
Jersey, 50 miles outside of New York City. The county's 2013 estimated
population is about 630,000. Incorporated cities located within Monmouth
County include Asbury Park, Long Branch, and Red Bank.
PROXIMITY TO NEW YORK CITY CREATES STRONG ECONOMIC CORE
Fitch expects the county's economy will continue to perform well over
time given the benefits inherent in its proximity to New York City and
desirable coastline location. The county's labor force is well educated
and median household income registers a strong 118% of the state and
160% of the U.S. standard. The county's market value on a per capita
basis, approximately $180,000, is considered very high and further
indicative of the wealth characteristics of both year-round residents
and second home owners. The housing market continues a strong rebound,
with median prices in the county's largest communities up over 20% on
the year according to Trulia.
The employment base is not performing as strongly as housing, with the
county registering a third straight year of modest gains in 2013
consistent with the broader New York-Newark-Jersey City metropolitan
statistical area (MSA). Unemployment improved to 6.0% in May compared to
7.5% in the same month of 2013 largely due to labor force declines. The
county's employment base remains about 15,000 jobs below its
pre-recession high. Leading non-governmental employers in the county
include Meridian Health Care (9,200), Saker ShopRites (6,850), and Air
Safety Equipment (2,600).
FINANCIAL RESOURCES SOUND ENTERING 2014
Unaudited information for 2013 depicts an increase in the current fund
balance to $76.2 million or 14.8% of expenditures from $66.6 million or
12.6% of expenditures in 2012. Reserves increased during the year as the
county was able to release as unrestricted surplus a total of $12.7
million recorded as a reserve for accumulated grant receivables.
Management reports approximately $3 million of appropriated fund balance
spent for operations in fiscal 2013 (equivalent to less than 1% of
spending). The county's financial management policy requires a minimum
current fund balance equal to 7% of revenues. Reserve levels have
historically been maintained well above the policy level which is an
important consideration in the maintenance of the 'AAA' rating.
FUND BALANCE RELIANCE & FLAT REVENUE GROWTH A GROWING CONCERN
The 2014 current fund budget includes a fund balance appropriation of
$43 million representing a high 8.9% of the budget. The fund balance
appropriation was lowered from $46 million in 2013 and has been fairly
consistent since 2009. However, the reliance on fund balance for
operations is expected to grow considerably in 2014, with a year-end
fund balance projection of roughly $60 million (a $16 million deficit)
in the worst case. The projected fund balance would remain equivalent to
approximately 12% of spending. The fund balance projection does not
reflect the potential receipt of close to $4 million in FEMA funds
associated with Superstorm Sandy, a portion of which would be deposited
in the current fund. Material additional use of reserves beyond what is
projected in 2014 could put pressure on the current rating.
Management has done a noteworthy job controlling costs to counter flat
revenue totals as the county has opted to hold constant the levy for
property taxes (the source for 63% of 2014 budgeted revenue) in each of
the prior four years. Prior year actions, which have included layoffs
and hiring freezes, increased employee contributions for health care,
elimination of programs and a reduction in capital projects, limited
spending growth to just 0.7% from 2009-2013. The current full-time
workforce is down 393 positions or 12% since 2008.
Expenditure reduction alternatives appear to be more limited now largely
reflected in diminishing appropriation reserves (unspent, lapsed
appropriations) and the projected use of fund balance this year. The
county's ability to resolve the existing budget gap would appear to
center on an increase in revenue, with the county able to generate
approximately $10 million in additional property taxes within the
constraints of the statutory tax cap. The county's property tax rate
remains among the lowest in the state, and the tax levy is fully
guaranteed by the county's underlying municipalities eliminating risk of
non-collection or delinquencies.
MODERATE DEBT BURDEN
The county's overall debt burden remains moderate at $3,993 per capita
or 2.3% of market value (estimated at $109.9 billion in 2014). Debt
statistics include $370.2 million of county-guaranteed debt issued by
the MCIA and backed by the unlimited tax GO pledge of the local unit
participants; this amount represents about 15% of the county's overall
debt burden. In the history of the MCIA debt program there has never
been an occurrence of a local unit bond payment default. The rate of
outstanding principal amortization exceeds the county's aggressive
policy of 70% within 10 years, providing ample capacity in future years
for continued capital investment. Despite the rapid payout carrying
costs related to county debt remain quite manageable at about 11% of
spending. The county adopted a six-year capital program totaling just
over $230 million, reduced from $344.9 million last year as the county
concludes several larger scale capital projects and focuses on
maintenance needs going forward.
PARTICIPATION IN UNDERFUNDED STATE PENSION PLANS
The county participates in two state-run pension plans, Public Employees
Retirement System (PERS) and Police and Fireman's Retirement System
(PFRS), and is fully funding its annual required contribution as
dictated by the state. PERS and PFRS are 74% and 76.9% funded as of June
30, 2013. Fitch estimates the funded status of both plans diminishes
moderately when substituting a 7% rate of return for the plans fairly
aggressive 7.9% rate. Contributions to the state plans are budgeted at
$23.8 million in 2014 or 4.9% of spending. The county budgets just
$100,000 for its single-employer defined contribution plan.
Pension reforms enacted by the state, including an increase in employee
contributions, are considered positive, although required payments to
the state plans have averaged only about 90% of the ARC the last five
years. The current unfunded OPEB liability equals just 0.5% of market
value. OPEB is funded on a pay-as-you-go basis and payments are expected
to decline over time as employees hired after July 1, 1994 will not
receive paid health care benefits when they retire.
COUNTY GUARANTY PROVISIONS
The city of Asbury Park's obligation to pay debt service on the bonds is
unconditional and irrevocable, and a direct and general obligation of
the city backed by the levy of an unlimited ad valorem tax. The bonds
are additionally secured by the full, unconditional and irrevocable
guarantee of Monmouth County, backed by its unlimited ad valorem taxing
power. If on the 15th day of the month preceding a month in which MCIA
debt service is payable there are insufficient funds in the debt service
fund to make such payment the MCIA shall notify the county and the
county shall immediately take all actions necessary to cure the
deficiency (which may include the adoption of an emergency
appropriation). Fitch estimates annual debt charges associated with all
outstanding county-guaranteed MCIA debt at roughly $21 million or 4% of
the current fund budget. There is no history of local unit payment
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, National
Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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Source: Fitch Ratings