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.
SECURITY
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.
RATING SENSITIVITIES
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.
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 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.
Applicable Criteria
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug
2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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Fitch RatingsPrimary AnalystMichael RinaldiSenior
Director+1-212-908-0833Fitch Ratings, Inc.33 Whitehall StreetNew
York, NY 10004orSecondary AnalystKevin
DolanDirector+1-212-908-0538orCommittee ChairpersonKaren KropSenior
Director+1-212-908-0661orMedia Relations:Elizabeth Fogerty,
+1-212-908-0526elizabeth.fogerty@fitchratings.com