NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed its 'AAA' rating on the following Borough of New Providence, NJ (the borough) general obligation (GO) bonds:
--$11.9 million outstanding GO general improvement bonds.
The Rating Outlook is Stable.
The bonds are secured 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: The borough benefits from its location within commuting distance of major employment areas. Residents are well-educated professionals and exhibit above-average wealth levels.
MANAGEABLE DEBT LEVELS: Overall debt levels are moderate and the borough's pension and other post-employment benefits (OPEB) liabilities are manageable.
HISTORICALLY STABLE AND DIVERSE TAX BASE: The borough's tax base has been relatively stable over the past five years although assessed values dipped slightly in fiscals 2013 and 2014. Although primarily a residential tax base, the top 10 taxpayers are diverse and include a number of major corporations.
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.
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 12,284 which is up 3% since 2000.
PROXIMITY TO EMPLOYMENT CENTERS SUPPORTS 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 170% and 230% of the state and national averages, respectively. The borough features a low poverty rate and a workforce exhibiting a high level of educational attainment (28% of residents hold an advanced degree compared to the national rate of 10%).
STABLE AND DIVERSE TAX BASE
The borough has a 2013 market value of $2.5 billion which translates to a high $202,232 market value per capita, further evidence of the high wealth levels. The borough's tax base has remained relatively stable over the past five years, although assessed value (AV) dipped slightly in fiscal 2013 (less than 1%) and fiscal 2014 (0.2%) due primarily to two large commercial property tax appeals and the sale of a 25-acre property for redevelopment. Construction of a 300-unit continuing care retirement community has commenced on this site. The facility should benefit the borough's tax base and property tax revenue upon completion (currently scheduled in the second half of 2015).
Taxpayer concentration is low, as the top 10 taxpayers make up 9.5% of AV and consist of a number of major corporations that have headquarters or executive offices in the borough. The largest taxpayer at 1.6% is the B.O.C. Group, Inc., a division of Linde Group, a worldwide leading gases and engineering company. Other major taxpayers include C.R. Barde (healthcare products), LexisNexis Martindale-Hubbell (publishing and information), and Alcatel-Lucent.
STRONG FINANCIAL CONDITION
The borough's maintenance of high reserves continued in fiscal 2012 as a result of conservative financial policies and budgeting practices. The borough's current fund balance was $2.8 million at the close of fiscal 2012, equivalent to a healthy 17% of current fund operating expenditures. 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 $1.1 million at fiscal year-end 2012. These funds were established per policy for typically volatile expenditures items such as snow removal and successful tax appeals. A capital surplus fund totaling $343,044 at year-end is also available to support operations if not used for capital purposes. These funds, combined with the borough's current fund, total $4.3 million, or 26% of current fund operating expenditures, providing the borough with ample financial flexibility. Unaudited fiscal 2013 results show continued growth in all reserves. The combined current fund balance and special reserves equaled $4.6 million, or a strong 25% of expenditures.
STABLE OPERATIONS PROJECTED FOR FISCAL 2014
The proposed fiscal 2014 budget introduced on March 31, 2014, includes a 1.9% increase in the municipal portion of the tax rate, to $0.909 per $1,000 AV, which compensates for a slight loss in AV and corresponding decline in property tax revenues. Services are kept level with the prior year and the borough is adding employees in certain areas. New Jersey municipalities are subject to a 2% tax levy cap, although debt service, pension, and healthcare costs are exempt. The borough has been successful in managing within this tax cap.
Management anticipates fiscal 2014 results will result in a fund balance level equal to, or slightly better than, fiscal 2013 levels, which Fitch views as reasonable given the borough's history of conservative budget practices.
MODERATE DEBT LEVELS WITH RAPID AMORTIZATION
Overall debt levels are moderate at $4,533 per capita and 2.2% of market value due primarily to overlapping county and school debt. Debt amortization is very rapid, with 77% of debt retired in 10 years. The borough's capital needs are minimal and include general capital and infrastructure needs with up to $3.5 million of debt likely to be issued over the next couple of years. Debt policies in place provide for rapid amortization and maintenance of level debt service costs, which Fitch finds favorable.
MANAGEABLE PENSION AND OPEB LIABILITIES
The majority of the borough's employees participate in either of the state operated police and firemens' retirement system or the public employees' retirement system, which are adequately funded at 77.6% and 74.5%, respectively. The borough's contributions, which are actuarially determined, totaled $900,486 in fiscal 2012 and $924,000 in fiscal 2013, equal to roughly 6% of current fund spending. Fiscal 2014 contributions are expected to decrease by $76,000 or 8%.
The borough's OPEB obligations are not material due to stringent eligibility requirements. The borough paid $17,564 in annual costs in fiscal 2012.
Carrying costs (including debt service, pension and OPEB costs) were moderate at 18% of spending in fiscal 2012, reflective of rapid amortization of debt. Carrying costs are expected to be lower as annual debt service costs decline in fiscal 2014 due to the maturity of a large portion of debt in fiscal 2013.
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
U.S. Local Government Tax-Supported Rating Criteria