NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following Borough of New Providence, NJ (the borough) general obligation (GO) bonds:
--$9,980,000 general improvement bonds, series 2015.
Proceeds will be used to currently refund the borough's outstanding bond anticipation notes of $3.25 million and finance various capital improvement projects. The bonds are scheduled to sell via competitive sale on June 17.
In addition Fitch affirms its ratings on the following borough bonds:
--$10.5 million outstanding GO general improvement bonds at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The bonds are backed by the borough's full faith and credit and unlimited taxing authority.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The borough's strong financial management and prudent budgeting practices have led to the maintenance of ample reserve levels, providing the borough with a high degree of financial flexibility.
STRONG SOCIOECONOMIC INDICATORS: Wealth levels are above average, representative of the highly educated professionals residing in the borough and its location within commuting distance of major employment centers.
MANAGEABLE DEBT LEVELS: Overall debt levels are moderate and are not expected to rise. The borough's pension and other post-employment benefits (OPEB) liabilities are manageable.
STABLE AND DIVERSE TAX BASE: The borough's primarily residential tax base has experienced modest declines over the past five years due to tax appeals and some recessionary value declines. New development has continued, offsetting some of the declines, and growth in taxable values has resumed in fiscal 2015. The top 10 taxpayers are diverse and represent 8% of the tax base.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics including the borough's strong financial management practices and healthy reserves. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely over the coming review cycle.
CREDIT PROFILE
New Providence is located in Union County, roughly 15 miles from downtown Newark and 28 miles west of New York City. The borough has a population of 12,332, up 3.6% since 2000.
PROXIMITY TO EMPLOYMENT CENTERS; ABOVE-AVERAGE WEALTH LEVELS
Borough residents are primarily working professionals who commute to nearby employment areas including New York City, Newark and Morristown. Wealth levels are very high, as reflected in median household income levels equal to 182% and 246% of the state and national averages, respectively. The borough features a low poverty rate of 5.2% and a workforce exhibiting a high level of educational attainment (28% of residents hold an advanced degree compared to the national rate of 11%).
STABLE AND DIVERSE TAX BASE
The borough has a 2014 market value of $2.47 billion which translates to a high $200,000 market value per capita, further evidence of high wealth levels. The borough's assessed valuation (AV) has remained relatively stable over the past five years, although commercial property tax appeals occurred in 2012 primarily as a result of the sale of a 26-acre property for redevelopment. Construction of a 420-unit continuing care retirement community, Lantern Hill, with an estimated cost of $75 million, has commenced on this site. The first phase of the new facility reportedly sold out quickly and is expected to open in late 2015. This project along with other new commercial construction and two new town home developments are projected to boost fiscal 2016 taxable values.
Taxpayer concentration is low, as the top 10 taxpayers comprise 7.8% of AV and consist of a mix of residential, office, retail and commercial companies. The largest taxpayer at 1.6% is the B.O.C. Group, Inc., a division of Linde Group, a leading worldwide gases and engineering company.
STRONG FINANCIAL CONDITION
The borough's conservative budget practices and strong fiscal policies have contributed to historically solid current fund reserves. Fiscal 2013 closed with a $380,000 surplus, increasing current fund reserves to $3.2 million or a healthy 20% of spending. Unaudited results for fiscal 2014 show another year of surplus results with reserves projected to increase to $3.9 million or 23% of spending. Reserves remain well above the borough's adopted policy level of $750,000, which translates to a fairly narrow 4%-5% of current spending.
The borough also prudently maintains special reserves pursuant to its financial policies that totaled $1.2 million at fiscal 2014 year-end. These funds were established per policy for typically volatile expenditure items such as snow removal and potential tax appeals and include a capital surplus fund.
These reserves, combined with the borough's projected 2014 current fund, total just over $5 million or 30% of current fund operating expenditures, providing the borough with ample financial flexibility.
FISCAL 2015 BUDGET INCLUDES MODEST TAX INCREASE
The fiscal 2015 budget was adopted April 13, 2015 and includes a 1.88% increase in the municipal portion of the tax levy and reflects the anticipated increase in AV. Increases in pension, health and salary costs are the primary expenditure drivers. Management also included an additional $225,000 appropriation for potential tax appeals. New Jersey municipalities are subject to a 2% tax levy cap, although debt service, increases in pension and healthcare costs, and tax revenues from new development are exempt. The borough has been successful in managing within this tax cap.
MODERATE DEBT LEVELS WITH RAPID AMORTIZATION
Overall debt levels are moderate at $4,272 per capita and 2.1% of market value, due primarily to overlapping county and school debt. Debt amortization is very rapid, with 77% of principal retired in 10 years. The borough's capital needs are minimal and include general capital and infrastructure projects of close to $2 million (to be funded from a mix of budget appropriations and short term borrowing). Debt policies provide for rapid amortization and maintenance of level debt service costs, which Fitch views favorably.
MANAGEABLE PENSION AND OPEB LIABILITIES
The majority of the borough's employees participate in either the state operated police and firemens' retirement system or the public employees' retirement system; the programs are funded at an estimated 69% and 67%, respectively, using Fitch's conservative 7% investment rate of return assumption. The borough's contributions, which are actuarially determined, totaled $842,000 or roughly 5% of fiscal 2014 current fund spending. Fiscal 2015 contributions are expected to increase modestly.
The borough's OPEB obligations are not material due to stringent eligibility requirements. The borough paid $36,000 in annual costs in fiscal 2014.
Carrying costs (including debt service, pension and OPEB costs) were moderate at 15% of current fund spending in fiscal 2014. Carrying costs are expected to increase slightly due to the new debt amortizing beginning in fiscal 2016 and climbing pension costs.
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, and the 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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985156
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