Fitch Affirms Old Bridge Township, NJ's GO Bonds at 'AA'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed its 'AA' rating on the following Old Bridge Township, New Jersey (the township) general obligation (GO) bonds:

--$10.7 million outstanding GO bonds series 2002C and 2008.

The Rating Outlook is Stable.

SECURITY

The bonds are unlimited tax general obligations of the township for which its full faith and credit is pledged.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: Management's prudent budget decisions have resulted in strong levels of reserves despite a state mandated cap on annual property tax levy growth. Overall financial flexibility has improved and is projected to remain sound.

RELATIVELY STABLE TAX BASE: The township's primarily residential tax base appears to have stabilized after modest declines during the economic downturn. Property tax collection rates are high, aided by successful tax lien sales. New developments occurring in both the residential and commercial sectors are a positive consideration.

FAVORABLE SOCIOECONOMIC INDICATORS: Local indicators are positive, with above average wealth levels and moderate unemployment. The township benefits from an advantageous location just south of New York City and access to major transportation corridors.

MANAGEABLE DEBT AND POST-EMPLOYMENT COSTS: Carrying costs including pension and debt service are average and are not expected by Fitch to pressure the credit going forward, despite expected pension cost increases due to slightly low funded levels. Debt levels are moderate and amortization is very rapid.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the township's strong financial management practices and solid reserve levels. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Old Bridge is located in Middlesex County in the central- eastern portion of the state approximately 36 miles south of New York City. It has a 2013 population of 66,570, up 10% since 2000.

OVERALL FINANCIAL FLEXIBILITY IMPROVES

The township's financial position improved after a brief period of reserve declines during the economic downturn. Fiscal 2013 ended with an unreserved current fund balance of $8 million or a strong 16% of total expenditures, up from $7.1 million (13%) a year prior. A combination of conservative budget projections and increased building permit fees and other local municipal revenues contributed to the surplus. Management has historically set aside other reserves for various purposes including snow removal, storm related costs and tax appeals, which combined total approximately $1.5 million and further enhance financial flexibility.

Property tax is the current fund's largest revenue source, accounting for 66% of total revenues in fiscal 2013. Collection rates are high and have been aided by the township's successful use of tax lien sales.

Management has implemented cost cutting measures the past four years, which have helped offset declines in state aid and other revenue sources and lowered overall personnel and general operating costs. These measures, along with very modest tax levy increases contributed to surplus operations the last three fiscal years.

FISCAL 2014 PROJECTIONS REFLECT STABLE OPERATIONS

Old Bridge's fiscal 2014 budget for both municipal and library purposes is $53 million, up less than 1% from fiscal 2013. Salary costs associated with the funding of five new full time employees, increased snow removal costs and higher debt service and capital funding are the principal expenditure drivers. The tax levy increase for fiscal 2014 was below the state mandated 2% cap by $0.835 million, and this amount is banked for potential use in fiscal 2015 and fiscal 2016 if necessary. The state allows exceptions from the 2% levy increase cap for health benefits, pensions and debt service, and Old Bridge has been successful in managing to this cap. Management is projecting stable results for fiscal 2014 with no change in fund balance levels.

MODERATE TAX BASE GROWTH PROJECTED

Old Bridge has a 2014 equalized tax base value of $6.8 billion, down 12.8% from $7.8 million in 2009 primarily as a result of the economic downturn. New development has picked up, with a number of new residential housing developments, new retail store openings and commercial expansions. Taxpayer concentration is low with the top 10 accounting for only 4.3% of the 2014 total tax base. A moderate increase in concentration is expected with the inclusion of a new Walmart (the town's second) in the 2015 valuation.

LOCAL ECONOMIC INDICATORS ARE POSITIVE

The township benefits from an advantageous location in Middlesex County, 36 miles south of New York City and with excellent access to major commuter routes. Old Bridge is also near the New Jersey Shore, which provides a recreational destination for residents. Wealth levels are above average with per capita income at 104% of the state and 133% of national levels. The unemployment rate improved to 6.3% for July 2014, which was below the state (7.1%) and national averages (6.5%) for the same period. Although the rate was down from 7.8% a year prior, it also included a slight decline in the labor force.

MANAGEABLE FIXED COSTS

The overall net debt burden for the township is moderate at $1,998 per capita and 2% of market value. Management has a policy that limits debt issuances to no longer than a 10 year final maturity. Debt ratios are expected to remain moderate as any new debt generally replaces retiring debt, which Fitch views positively.

Outstanding debt for the Old Bridge Municipal Utility Authority (OB MUA) carries the township's GO pledge; however, the bonds are ultimately secured by user fees from water and sewer operations. The user fees have been sufficient to service the debt and given the stability of the revenue source and historic performance, current fund support of the OB MUA debt is unlikely.

The township participates in two cost sharing multiple-employer defined benefit pension plans administered by the state - the Public Employees' Retirement System (PERS) and the Police and Fireman's Retirement System (PFRS). Estimated funding levels for both plans are slightly low at 69% as of July 1, 2013 using Fitch's more conservative 7% rate of return assumption. Old Bridge made its total required combined contribution of $3.6 million in fiscal 2013 which represented 7% of current fund spending.

Other post-employment benefits (OPEB) are being funded on a pay-go basis. The unfunded liability was $148 million as of Jan. 1, 2012 or a moderate 2.2% of equalized value. Management has recently negotiated changes in employee health insurance contributions with a number of its labor groups, which is projected to help reduce the long term liability over time.

Total carrying costs for debt service, pension contributions and OPEB pay-as-you-go were slightly high at 24% of fiscal 2013 current fund expenditures, but such costs are exempt from the 2% tax levy cap.

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 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=892414

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Contacts

Fitch Ratings
Primary Analyst
Kevin Dolan, +1-212-908-0538
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Committee Chairperson
Steve Murray, +1-512-215-3729
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Kevin Dolan, +1-212-908-0538
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Committee Chairperson
Steve Murray, +1-512-215-3729
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com