NEW YORK--()--Fitch Ratings has assigned the following ratings to Monmouth County Improvement Authority, NJ (MCIA):
--$11.3 million governmental loan revenue bonds, series 2012 rated 'AAA'.
The bonds are scheduled to price via negotiation on December 4.
In addition, Fitch affirms the ratings on the following bonds:
--Approximately $296.7 million Monmouth County (the county) general obligation bonds at 'AAA';
--Approximately $255.5 million MCIA bonds at 'AAA'.
The Rating Outlook is Stable.
The loan revenue bonds are secured by payments to the authority by the local units, consisting of 16 municipalities. The payments are direct and general obligations of the municipalities. Payments by the local units are fully, unconditionally and irrevocably guaranteed by the county.
KEY RATING DRIVERS
HEALTHY ECONOMY: The county is positively situated in the greater New York metropolitan area with 27 miles of Atlantic coastline and benefits from high income levels and a diversified economy.
MODERATE DEBT LEVELS: County debt levels are manageable with very rapid amortization.
STRONG BUT WEAKENING FINANCES: The county maintains a comfortable fund balance level despite noticeable declines over the past three years. The county's practice of conservative budgeting has allowed for relative stability in its financial flexibility and liquidity remains strong.
AGGRESSIVE COST CUTTING: County management has actively sought expenditure reductions through layoffs, shared services and reduced capital expenses.
COUNTY GUARANTEE: The MCIA rating is based on the underlying general obligation guarantee of the county, which provides robust security for the MCIA bonds.
Monmouth County is located along the northern Atlantic shore of New Jersey, 50 miles outside of New York City. The county's 2010 population totaled 630,380 including the cities of Asbury Park, Long Branch and Red Bank. The county reports that 23 of its 53 municipalities incurred significant damage as a result of hurricane Sandy with the remaining 30 reporting minimal to no damage. The coastal communities hit hard by the storm, such as Union Beach, Sea Bright and Belmar to name a few, are all in various stages of clean-up and rebuilding and the county does not anticipate additional costs to the county associated with municipal recoveries.
PROXIMITY TO NEW YORK CITY CREATES STRONG ECONOMIC CORE
The county's economy remains strong reflected in a diversified employment base, solid growth and wealth levels exceeding high state averages and well above national levels. While the health care and retail sectors still dominate private employment, strong gains in the real estate, wholesale, and leisure and hospitality sectors are evident. The county's unemployment rate of 8.4% in September 2012 was below the state's 9.2% but now above the national 7.6% average. County, regional and state employment figures were flat compared to a year prior, underperforming the national trend showing 2% growth.
The county retains key pockets of future growth potential with the high-profile redevelopment of the now closed Fort Monmouth at the top of the list. The Fort Monmouth Economic Revitalization Authority was granted formal authorization to guide redevelopment and report successful results, such as the planned relocation of Commvault, a backup software company, from another location in the county to a larger space at the Fort where it will add 2,500 jobs. Fitch believes the county's long-term ability to withstand the base closure is strong as the economy is deeply diversified, providing opportunities for the approximately 5,500 highly skilled displaced employees. Fitch expects county data to continue the trend reflected in annualized data for the 10 years up to 2011 showing the county unemployment rate as consistently below the national average.
HURRICANE SANDY; MINIMAL BUDGET IMPACT
The county reports minimal budget exposure to fiscal 2012 county performance as a result of hurricane Sandy and was able to absorb the roughly $6 million cost up front through year-to-date savings on its $487 million budget in the areas of salaries/wages, pensions and healthcare. The county expects reimbursements from the Federal Emergency Management Agency (FEMA) at the standard 75% rate in fiscal 2013 and is already processing claims from FEMA.
Fitch views positively the county's proactive approach to managing potential tax appeals on damaged property. Management passed an emergency resolution to revalue affected properties before municipalities, school districts and the county set their tax rates for the 2013 fiscal year commencing Jan. 1. While assessments are typically a local responsibility, the county has centralized the procedure this one time so properties can be assessed downward ahead of budget season in an effort to avoid significant appeal activity and potential resultant delays in tax payments. The county reports that assessed values throughout the county, pre-storm, were on track to show stability following a 2.3% decline in 2011.
FINANCIAL RESOURCES SOUND DESPITE SOME USE OF FUND BALANCE
The county's financial position has deteriorated somewhat, with 2010 unreserved fund balance in the current fund at $76.8 million, or 15.2% of expenditures, a $6.9 million decline from 2009. The county's audited 2011 results show another $7.4 million drop in unreserved fund balance, reducing it to approximately 13.8% of expenditures. This decline is largely the result of a $7.6 million transfer from the current fund to the grant fund in advance of receipt of grant funding. The county anticipates receiving the grant funding on schedule in fiscal 2013 and reimbursing the general fund. Without reserving these funds, the unreserved fund balance would be approximately $0.3 million higher than its 2010 level.
ACTIVE EXPENSE MANAGEMENT KEY TO FINANCIAL FLEXIBILITY
The county expects to achieve balanced operations in 2012. Fitch believes this is a reasonable expectation, and the achievement of this goal is key to the maintenance of the current rating level. The adopted budget is $4 million smaller than the 2011 budget and features no tax increase for the second year in a row. The county's tax rates are among the lowest in the state, and the county is guaranteed 100% tax collections by its underlying municipalities. Approximately 58% of the county's revenues come from property taxes. The county reports three towns are late on their Nov. 15 tax payment (representing 1% of total tax revenue) and all are expected within the coming few months. Reasons for delays vary but include storm-related extensions given to residents.
The county has been actively looking for ways to reduce expenses. It has implemented a number of cost reduction policies, including layoffs and hiring freezes, consolidating services, the elimination of programs, outsourcing, and a reduction in capital projects. Additionally, the county has increased employee contributions for health care.
MODERATE DEBT BURDEN WITH RAPID AMORTIZATION
The county's overall debt burden is manageable at $3,480 per capita and 1.9% of market value. Pursuant to county resolution, debt is amortized very rapidly, providing ample capacity in future years for continued capital investment. Amortization rates are comfortably above the county's 70% policy, with 88% retired in 10 years. Debt service payments constitute 12% of expenditures.
Pursuant to state law, municipal payment deficiencies are ultimately guaranteed by the county upon notification by the authority of a debt service shortfall. The authority provides sufficient notification to the county to meet its debt service guarantee in a timely manner. The county has never needed to fulfill its pledge to support debt issued through the MCIA.
SLIGHTLY WEAK FUNDING OF 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. Both plans have slightly weak Fitch-adjusted funding levels as of June 30, 2011, with PERS at 67.1% and PFRS at 68.5%. Other post-employment benefits (OPEB) and pension payments are a manageable 5.1% and 1.7% of expenditures, respectively. OPEB is funded on a pay-as-you-go basis. OPEB payments are expected to decline over time as employees hired after July 1,
1994 will not receive paid health care benefits when they retire.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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