NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following general obligation (GO) bonds to be issued by Monmouth County, NJ (the county):
--$47,785,000 general improvement refunding bonds, series 2015;
--$14,920,000 open space refunding bonds, series 2015.
The bonds will be sold via negotiation on or about June 11. Proceeds will refund various outstanding county obligations, estimated to generate net present value savings totaling $3.1 million or 4.8% of refunded par.
Fitch also assigns a rating of 'AAA' to $15,385,000 of governmental pooled loan refunding revenue bonds, series 2015 to be issued by the Monmouth County Improvement Authority (MCIA). The revenue bonds will be sold via negotiation on or about June 4. Proceeds will refund certain outstanding obligations of the MCIA, estimated to generate net present value savings totaling $770,172 or 5.0% of refunded bonds.
Fitch affirms the 'AAA' rating on the county's $396.5 million outstanding GO bonds and $351.8 million outstanding MCIA revenue bonds.
The Rating Outlook is Stable.
The bonds are a general obligation of the county backed by its full faith and credit and the levy of ad valorem taxes without limit as to rate or amount. 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.
SHIFT IN FINANCIAL PERFORMANCE: The rating remains sensitive to the maintenance of stable financial operations and a healthy fund balance position. An increase in the 2015 tax levy and resolution authorizing the sale of the county's care centers, which have consistently run at sizable deficits, are expected to help stem the growing use of current fund reserves for operations.
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 preliminary March unemployment rate was 6.0% compared to 6.8% for New Jersey. Leading non-governmental employers in the county include Meridian Health Care (9,932), 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 $175,000, 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 $380,000 according to Zillow Group, but prices have been fairly flat. 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
Unaudited 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.
FINANCIAL OUTLOOK IMPROVED FOLLOWING TAX INCREASE, PLAN TO SELL CARE CENTERS
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 $43 million in 2014.
Importantly the county approved a 1.5% increase in its tax levy, 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 eliminating risk of non-collection or delinquency. Property taxes account for 63% of the 2015 budget.
In March the county authorized the sale of its two care centers. The care centers have operated at a deficit for some time, with the current fund absorbing losses totaling $7.1 million in 2014, $6.9 million in 2013, and $6.9 million in 2012 - as such, the disposition of these facilities, although politically challenging, would appear to relieve a considerable financial burden on the current fund budget. The county has retained a real estate brokerage firm with experience assisting other NJ counties that have sold nursing home facilities in recent years. The county reports good interest in the properties; management expects to bolster the current fund reserve position with the proceeds from a sale.
MANAGEABLE DEBT LEVELS AND CAPITAL DEMANDS
Fitch estimates the county's overall debt burden at a moderate $3,604 per capita or 2.1% of market value (estimated at $109.9 billion in 2014). Debt statistics include $351.8 million 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 18% of the county's overall debt burden. In the history of the MCIA debt program there has never been an occurrence of a local unit bond payment default.
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 will not 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 budgets just $100,000 for its single-employer defined contribution plan. 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.
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 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. There is no history of local unit payment default.
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, and IHS Global Insight.
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)