Fitch Rates Monmouth County Improvement Auth, N.J.'s Pooled Loan Revs 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned a rating of 'AAA' to the following revenue bonds to be issued by the Monmouth County Improvement Authority, N.J. (the MCIA):

--$22,335,000 pooled loan revenue bonds series 2015.

The bonds will be sold via negotiation on or about December 8th. The bonds will be issued to provide funds to make loans to various municipalities in Monmouth County (the county) for the purpose of refinancing certain outstanding bond anticipation notes and bonds and to finance general capital improvements.

Fitch currently rates $478.6 million of outstanding county general obligation (GO) bonds and $371.8 million of outstanding MCIA revenue bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The revenue bonds issued by the MCIA are payable by loan repayments made by various municipal borrowers and are additionally backed by the full, unconditional and irrevocable guarantee of the county and its unlimited ad valorem taxing power pursuant to various guaranty resolutions entered into by the county and the MCIA.

KEY RATING DRIVERS

STABLE FINANCIAL POSITION: General fund (or current fund) reserve levels remain solid, and liquidity is strong. Conservative budgeting and financial management have 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: Monmouth County's economic profile is driven by its favorable location within the greater New York metropolitan area and its 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 LONG-TERM LIABILITIES: County debt levels are moderate and rapidly amortized. The scope and nature of future capital needs and borrowing plans are manageable. Carrying costs including debt service, pension and other-post employment benefits (OPEB) remain an affordable component of the budget.

RATING SENSITIVITIES

SHIFT IN FINANCIAL PERFORMANCE: The rating remains sensitive to the maintenance of stable financial operations and a healthy fund balance position.

CREDIT PROFILE

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. Monmouth County resident employment gained some momentum in 2014 increasing 2.7% on the year following several years of flat performance consistent with the broader New York-Newark-Jersey City metropolitan statistical area (MSA). The county's September unemployment rate of 4.8% is the same as the national rate and slightly below the state rate of 5.0%. Leading non-governmental employers in the county include Meridian Health Care (9,932 employees), Centra State Healthcare Systems (2,626), Saker ShopRites (2,250), and Comm Vault (1,740).

The county's labor force is well educated and median household income registers a strong 118% of the state and 159% of the U.S. standard. The county's market value on a per capita basis, approximately $179,000, is considered very high and is further indicative of the wealth characteristics of both year-round residents and second home owners. Home prices in several of the county's larger communities such as Red Bank, Middletown, and Howell range from $300,000 to $350,000 according to Zillow Group, but prices have been fairly flat. Opportunities exist for new investment and job growth on the site of the former Fort Monmouth Army base, but tax base development may be a key issue going forward given the somewhat mature nature of the county and limitations on developable land.

SOUND FINANCIAL RESOURCES MAINTAINED

Audited financial statements for 2014 depict a decrease in the current fund balance of $9.8 million on the year to $66.4 million or 12.6% of spending. The fund balance usage was less than anticipated but significant nonetheless. 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.

IMPROVED FINANCIAL OUTLOOK FOLLOWING TAX INCREASE, CARE CENTERS AUCTION

Management has done a noteworthy job controlling costs to counter flat revenue totals but flexibility has diminished over time, largely reflected in lower appropriation reserves (unspent, lapsed appropriations) and sizable use of fund balance in 2014. The adopted 2015 budget includes a $40 million appropriation of fund balance representing a high 8.2% of budgeted revenue. The county has lowered its fund balance appropriation from $46 million in 2013 and plans to continue to lower the amount by $3 million annually until the current fund budget is restored to a state of operational balance. Management forecasts an $8.2 million reduction in fund balance in 2015 based on year-to-date results through August, which would result in a year-end fund balance of $58.2 million or a still healthy 11.9% of budgeted appropriations.

The county approved a 1.5% increase in its tax levy in 2015, the first increase since 2010, which will generate $4.5 million in new recurring revenue for the current fund. The county retains good flexibility under the statutory tax cap; its 2015 levy of $307 million was $7.2 million under the maximum allowable amount to be raised by taxation. 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 limiting risk of non-collection or delinquency. Property taxes account for 63% of the 2015 budget.

The 2015 fund balance projection does not consider the sale of the county's two care centers. On October 22 the county approved a resolution to accept separate bids to sell the John L. Montgomery Care Center and the Geraldine L. Thompson Care Center for $17.4 million and $15 million, respectively. The county plans to close on the transactions by December 31, with the proceeds providing a considerable boost to the current fund balance position. The disposition of these facilities also relieves a financial burden on the current fund budget, which has subsidized the care centers cost of operations in the amount of $7.1 million in 2014, $6.9 million in 2013, and $6.9 million in 2012.

MANAGEABLE DEBT LEVELS AND CAPITAL DEMANDS

Fitch estimates the county's overall debt burden at a moderate $3,074 per capita or 1.7% of market value (estimated at $112.8 billion for 2015). Debt statistics include $394.1 million (post sale) 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 19% of the county's overall debt burden.

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. Capital spending increases with the multi-year plan adopted in 2015 but remains very manageable at $307 million or 0.3% of market value and is not expected to increase debt levels over the five year period. Capital needs center on bridge and road improvements and engineering facilities.

RETIREE LIABILITIES REMAIN AFFORDABLE

Monmouth 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 actuarially based contribution established by the state. PERS and PFRS reported 2014 funded ratios were 74% and 76%, respectively. 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.

Pension contributions remain affordable and have been fairly stable, benefiting from recent reforms enacted by the state including an increase in employee contributions. Payments to the state plans are budgeted at $23.8 million in 2015 or 4.9% of spending. The county contributes just $100,000 to its single-employer defined contribution plan, for which there is no long-term liability. The liability for other post-employment benefits (OPEB) was reported at $436 million in 2013, or 0.4% of market value. OPEB is funded on a pay-as-you-go basis and payments are expected to decline over time, since employees hired after July 1, 1994 will not receive paid health care benefits when they retire. The total cost of funding debt service, pension, and OPEB costs is estimated by Fitch to consume roughly 20% of current fund spending.

COUNTY GUARANTY PROVISIONS

MCIA bonds are issued to acquire separate series of borrower bonds that are a direct and general obligation of each of the respective municipal borrowers. 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 $22 million or 4.5% of the current fund budget. In the history of the MCIA debt program there has never been an occurrence of a local unit bond payment default.

Date of Relevant Rating Committee: May 28, 2015.

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 and IHS Global Insight.

Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria will be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.

Applicable Criteria

Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942

Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

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Contacts

Fitch Ratings
Primary Analyst:
Michael Rinaldi, +1-212-908-0833
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Kevin Dolan, +1-212-908-0538
Director
or
Committee Chairperson:
Karen Krop, +1-212-908-0661
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Michael Rinaldi, +1-212-908-0833
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Kevin Dolan, +1-212-908-0538
Director
or
Committee Chairperson:
Karen Krop, +1-212-908-0661
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com