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MOODY'S ASSIGNS A Aa2 RATING TO FORT LEE BOROUGH'S (NJ) $8.8M GENERAL IMPROVEMENT REFUNDING BONDS, SERIES 2010

19 Nov 2010

AFFIRMS Aa2 RATING ON $67.9M OF POST-REFUNDING OUTSTANDING GENERAL OBLIGATION PARITY DEBT

Municipality
NJ

Moody's Rating

ISSUE

RATING

General Improvement Refunding Bonds, Series 2010

Aa2

  Sale Amount

$8,750,000

  Expected Sale Date

11/24/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Nov 19, 2010 -- Moody's Investors Service has assigned an Aa2 rating to the Borough of Fort Lee's (NJ) $8.8 million General Improvement Refunding Bonds, Series 2010. Concurrently, Moody's has affirmed the borough's long-term general obligation rating, affecting $67.9 million in outstanding parity debt. The current issue is secured by the borough's general obligation unlimited tax pledge and proceeds will currently refund the borough's Series 2002 bonds for an estimated net present value savings of $249,000 or 3.2% of the refunded principal with no extension of maturity.

RATING RATIONALE

The affirmation of Aa2 reflects the borough's narrow financial position, manageable debt profile, and wealthy and sizeable residential tax base that benefits from its proximity to New York.

SATISFACTORY FINANCIAL POSITION; NARROW RESERVES

Moody's expects the borough's financial operations to remain narrow given ongoing expenditure pressures, the new 2% statutory limitation on future property tax revenue growth and a stated managerial preference to keep property taxes low. In fiscal 2009, the borough fully replenished the $1.3 million of appropriated reserves and added $667,000 to Current Fund balance, increasing it to $2.2 million, but given budgetary growth the reserve-to-revenue ratio remained flat at a narrow 3.42% of Current Fund revenues which is less than the median General Fund balance for A3-rated New Jersey municipalities. Primary sources of replenishment were partly due to the borough collecting delinquent taxes from one of the largest taxpayers, Town & Country Developer, which had failed to pay $1.1 million in property taxes in 2008.

The fiscal 2010 budget included a higher $1.95 million reserve appropriation (89% of 2009 year-end Current Fund reserves) and preliminary estimates indicate a $1.7 million increase in fund balance, which will bring total reserves up to $3.9 million or 5.7% of budgeted 2010 General Fund revenues. This increase in fund balance occurred despite a 23% decrease in state aid and was primarily created by management's efforts to decrease recurring expenditures through the implementation of hiring freezes and early retirement incentives which led to the reduction of 30 staff positions over the last two years.

The fiscal 2010 budget represents the first budget year affected by a state property tax legislation that is intended to moderate increases in this important revenue stream. Aside from very specific exceptions (including debt service), the property tax levy for the state's municipalities is limited to 4% annual increases. With a high dependence on property tax revenues (91.7% of 2009 Current Fund revenues) and a recent history of 5.3% average annual levy increases, Fort Lee will be pressured to increase alternative revenues or continue the containment of expenditures in order to maintain its satisfactory financial position. The borough has generated an estimated $800,000 of new revenues by providing ambulatory services and contained expenditures through hiring freezes and attrition. Nevertheless, Moody's believes the borough will be challenged to build reserves up to stronger levels given reduced revenue-raising ability and management's commitment to keep millage rates low. Favorably, the borough does not defer the payment of the school tax levy.

WEALTHY AND SIZEABLE TAX BASE NEAR NEW YORK CITY

Moody's believes Fort Lee's wealthy and sizeable $6.6 billion tax base will remain stable with limited growth although, notably, preliminary plans to redevelop the borough's largest remaining parcel of developable land have resumed after two development companies recently purchased the parcels. Located in southeastern Bergen County (GO rated Aaa / stable outlook) approximately five minutes from New York City (GO rated Aa2 / stable outlook) and adjacent to the George Washington Bridge, Fort Lee has long benefited from the economic prosperity of and its proximity to the greater New York area. The borough is primarily residential (58.8% of assessed valuation) with numerous apartment buildings (23.6% of assessed value), and the borough's top ten taxpayers consist of seven residential co-operatives and apartments. Assessed valuation growth has averaged less 1% annually for the last five years, reflective of the mature nature of the community. Equalized valuation growth averaged a stronger 3.0% from 2005 to 2010, capturing historically healthy market appreciation that has slowed due to the current downturn in the housing market. The borough has commenced the planning of a previously cancelled redevelopment agreement for a proposed redevelopment of the 35-acre former Helmsley property after two developers have recently purchased the property for $60 million. The planning board approval process is expected to take a minimum of one year while the construction of the mixed use development would require an additional 1-3 years before any of the estimated $1 billion of additional assessed value will begin to generate property tax revenue for the borough. Per capita income levels are 175.6% of national medians and equalized value per capita is an above average $181,677 (117% of the state median and 203% of the national median).

FAVORABLE DEBT POSITION WITH LIMITED BORROWING PLANS

Moody's believes Fort Lee's debt position will remain favorable given rapid amortization of principal (100% in ten years) and limited future borrowing plans. The borough's direct debt burden is low at 1% of equalized valuation and the overall debt burden increases only slightly to a still below-average 1.7% after accounting for the borough's pro rata share of overlapping Bergen County and Bergen County Utility Authority debt obligations. The local school district currently has no long-term debt outstanding. The borough has recently completed a three-year, $24 million road and infrastructure improvement project of which $18 million was paid by the county and New York New Jersey Port Authority. The borough may continue to borrow a modest $1 million annually, on average, over the next five years for ongoing capital needs. The borough has approximately $23.7 million in outstanding Bond Anticipation Notes and expects to continue rolling the notes until retirement or long term financing becomes necessary. Debt service was an above average 11.5% of 2009 expenditures, reflective of the rapid principal amortization. The borough has no outstanding variable rate debt and is not party to any derivative agreements.

What could make the rating go up:

-Substantial tax base and economic growth

-Continued strong financial operations

-Steady reduction in debt burden

What could make the rating go down:

-Ongoing economic and tax base declines

-Multi-year operating deficits that sharply reduce General Fund reserves

-Significant increase in debt burden

KEY STATISTICS

2008 Population: 36,275 (2.3% increase since 2000)

2010 Equalized Value: $6.59 billion

2010 Equalized Value Per Capita (as % of NJ and US): $181,677 (117% and 203%)

1999 Per Capita Income (as % of NJ and US): $37,899 (140% and 176%)

1999 Median Family Income (as % of NJ and US): $72,140 (110% and 144%)

Direct Debt Burden: 1.0%

Overall Debt Burden: 1.7%

Payout of Principal (10 years): 100%

2009 Current Fund balance: $2.243 million (3.42% of Current Fund revenues)

2010 Estimated Current Fund balance: $3.9 million (5.7% of Current Fund revenues)

Post-sale parity debt outstanding: $67.9 million ($43.86 million GOULT Bonds and $23.7 million Bond Anticipation Notes)

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings and public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Vito Galluccio
Analyst
Public Finance Group
Moody's Investors Service

Josellyn Yousef
Backup Analyst
Public Finance Group
Moody's Investors Service

Julie Beglin
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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MOODY'S ASSIGNS A Aa2 RATING TO FORT LEE BOROUGH'S (NJ) $8.8M GENERAL IMPROVEMENT REFUNDING BONDS, SERIES 2010
No Related Data.
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