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MOODY'S ASSIGNS Aa2 RATING WITH STABLE OUTLOOK TO BURLINGTON COUNTY BRIDGE COMMISSION'S (NJ) $10 MILLION COUNTY-GUARANTEED LEASE REVENUE REFUNDING BONDS, SERIES 2011

31 Aug 2011

AFFIRMATION OF Aa2 RATING WITH STABLE OUTLOOK APPLIES TO $310.3 MILLION OF RATED LONG-TERM COUNTY G.O. AND COUNTY-GUARANTEED PARITY DEBT OUTSTANDING

County
NJ

Moody's Rating

ISSUE

RATING

County-Guaranteed Pooled Lease Revenue Refunding Bonds, Series 2011

Aa2

  Sale Amount

$10,300,000

  Expected Sale Date

09/07/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, Aug 31, 2011 -- Moody's Investors Service has assigned a Aa2 rating with a stable outlook to Burlington County Bridge Commission's (NJ) $10.3 million County-Guaranteed Pooled Lease Revenue Refunding Bonds, Series 2011. Concurrently, Moody's has affirmed the Aa2 ratings and stable outlook on approximately $310.28 million of previously issued and outstanding county and county-guaranteed general obligation debt. Proceeds from this issuance, which is secured by the county's general obligation unlimited property tax pledge, will be used by the commission to refund the currently outstanding Series 2003 bonds that were issued to fund leases to Burlington County and Delanco Sewerage Authority.

The bonds are secured by payments made pursuant to general obligation bonds of each of the borrowers, but are ultimately secured and guaranteed in their entirety by the county's general obligation unlimited tax pledge pursuant to Guaranty Resolution passed by the county's board of chosen freeholders that authorizes the 2011 county guaranty for payments on the bonds.

SUMMARY RATINGS RATIONALE

The Aa2 rating reflects the county's large tax base with higher than average wealth levels, narrowed yet adequate Current Fund reserves, and higher than average debt position. The stable outlook reflects Moody's belief that management will take the necessary steps to maintain satisfactory financial flexibility despite near-term budgetary pressures facing all New Jersey counties. Fiscal 2010 year end results reflect incremental steps toward controlling expenditures and maintenance of financial flexibility. However, future fund balance appropriations may be difficult to replenish given growing expenditures pressures, declining economically sensitive revenues, and a 2% property tax levy cap.

STRENGTHS

-Large tax base

-Higher than average socioeconomic wealth indicators

CHALLENGES

-Recently narrowed current fund reserves

-Statewide 2% levy cap

DETAILED CREDIT DISCUSSION

BONDS GUARANTEED BY COUNTY GENERAL OBLIGATION TAX PLEDGE

The bonds are secured and debt service is expected to be fully funded from the loan repayments made by the participant borrowers as provided under the bond resolution. In addition, the county has absolutely and unconditionally pledged its general obligation ad valorem taxing power to secure payment, when due, of principal and interest on the bonds. The county does not specifically budget for debt service payments on commission-issued debt covered by the county's general obligation guaranty, and would most likely make an emergency fund balance appropriation in the short-term to cure any failure to pay debt service by one or more of the participating municipalities. We believe the mechanics of the guaranty agreement provide sufficient time cushion for the county to make timely payment of debt service, should the need arise. Per the guaranty agreement, the participant borrowers shall make loan payments 30 days prior to the debt service payment date, with the trustee notifying the county two business days after the participant loan repayment date of insufficient debt service; the county must make payment in full by no later than two business days prior to the next debt service payment date on the bonds.

NEAR-TERM BUDGETARY PRESSURE MET WITH EXPENDITURE REDUCTIONS

Despite recent narrowing of the county's reserves, the stable outlook reflects our expectation that management will alleviate near-term budget pressure stemming from recessionary declines in economically sensitive revenues, reduction of taxable values, imposition of a statewide 2% cap on property tax levy growth, and growing expenditure costs associated with salaries and employee benefits by reducing expenditures. Current Fund balances have steadily declined over the past eight years to $12.9 million or 5.2% of revenues in fiscal 2009 from $28.7 million or 14.3% of revenue in fiscal 2003. Favorably, management has undertaken efforts to cut recurring expenditures and create cost efficiencies, including department consolidations and a substantial amount of layoffs, as well as raising new recurring revenues through inter-local agreements and indirect cost chargebacks to the library for administrative services provided. Notably, however, the county held its tax rate steady in its fiscal 2010 budget which, when combined with declining equalized value, caused the levy to decrease by $2.1 million - its third consecutive year of decline. Had the county increased its levy to the maximum allowable 4%, it would have generated an added $5.5 million in revenue. Failure to maintain satisfactory financial flexibility and increase reserves in step with budget growth at a minimum could result in deterioration of the county's credit quality.

Fiscal 2010 results lead to full replenishment of the $7.5 million fund balance originally appropriated as a revenue in the budget. Substantial expenditure cuts from staff reductions and departmental consolidations helped to fully replenish the surplus appropriated and still increase Current Fund balance by nearly $600,000. The county originally passed a fiscal 2010 budget with total expenditures that declined by approximately $3 million or 1.8% (budget-to-budget) in size from fiscal 2009 due to layoffs and wage freezes aimed at closing budget gaps created in prior years. Notably, the budget assumed the county would reduce staffing by 87 positions and transfer an additional 22 positions to appropriate trust funds. Miscellaneous revenues were budgeted down, especially investment earnings, which have fallen short of budgeted levels in previous years.

Historically, the county has budgeted an average of 60% of the year-end Current Fund balance as a revenue source in the subsequent year's budget. Moody's believes this practice may be difficult to maintain, however, given declining replenishment sources and tighter budgets.

The 2011 budget includes a 1% decrease in total expenditures given elected officials' desire to hold the line on both taxes and spending. Management believes the county will be able to generate further savings from decreased expenditures, particularly as additional layoffs in 2010 coupled with a continued freeze on new hires shrank the county workforce by 80 positions. Given the county's heavy reliance on property taxes (66% of fiscal 2010 operating revenue) and the more stringent cap on this important revenue stream, the county's future budgets are likely to remain pressured. The county has not increased the tax levy since fiscal 2007. Moody's believes other revenues may remain flat or increase modestly, providing limited revenue sources for budgetary growth or reserve augmentation. Affirmation of the Aa2 rating and stable outlook reflect Moody's belief that the county will take the necessary actions to decrease expenditures or offset expenditure growth with new revenues. Future credit reviews will factor in management's ability to structurally balance the budget and stabilize financial operations while augmenting reserves to historically satisfactory levels.

SIZEABLE, PRIMARILY RESIDENTIAL TAX BASE TO REMAIN STABLE

Moody's expects the county's substantial $51.9 billion tax base to remain stable given the current economic recession that has slowed new residential and commercial development after a period of strong growth. The county experienced solid growth from 2004 to 2009, with equalized valuations increasing at a healthy 10.4% annual average, reflecting both new construction and market value appreciation despite softening to 3% in 2009 and decreasing slightly by 1.4% in 2010. The county is primarily residential (78.8% of 2010 assessed valuation), with growing commercial (13%) and industrial (3.4%) components.

Located in south central New Jersey (GO rated Aa3/stable), 30 minutes from Philadelphia (GO rated A2/stable), the county is the largest in the state by land mass and spans from the Delaware River on the west to the Atlantic Ocean on the east. The Pinelands National Reserve comprises two-thirds of the county's land area; as a result, development is concentrated within the county's 40 municipalities. The county's major employers reflect the diversity of industries in the area, and include Lockheed Martin (senior unsecured rated Baa1/stable), with 5,000 employees; Virtua Health, with 4,918 employees; PHH Mortgage, with 4,500 employees; and TD Bank, N.A. (issuer rating Aa2/negative) with 3,172 employees.

Additionally, the county is home to McGuire Air Force Base, one of the largest east coast U.S. Air Force installations, with 5,000 active duty military and 4,000 civilian personnel; and Fort Dix Army Reserve Training Center, which employs 4,000 local residents. Officials estimate that these bases contribute a total of more than $630 million annually to the local economy. The bases gained 1,830 jobs through consolidation with Lakehurst Navy Base as a result of the defense department's 2006 Base Realignment and Closure (BRAC) process. The county's unemployment rate has consistently remained below both state and national levels (8.1% in December 2010 compared to 8.7% and 9.1% for the state and nation, respectively) despite population growth and the economic recession. Income indicators approximate state medians and equalized value per capita is an average $116,139 (84.6% of the state median).

HIGHER THAN AVERAGE DEBT BURDEN; RAPID AMORTIZATION OF PRINCIPAL

Moody's expects that the county's above-average debt burden (3.2% overall) will be manageable given rapid amortization of principal and moderate future borrowing plans. In fiscal 2010, debt service comprised a significant 13.8% of total operating expenditures, which is consistent with historical levels and reflects the county's rapid amortization schedule (77.2% retired within 10 years). If the promise to guarantee the debt were called into action for this issuance, the county's debt service as a percentage of expenditures would increase to roughly 15.3%, a scenario which would significantly reduce the county's financial flexibility. Burlington County regularly issues bond anticipation notes for ongoing capital needs, then permanently finances them over time as market conditions dictate. The county has no variable rate debt or derivative agreements.

OUTLOOK

The stable outlook reflects Moody's belief that, although the county's finances and reserve levels will be pressured in the near- to medium-term as a result of declining economically sensitive revenues, ongoing fund balance appropriations and limited growth of recurring revenues, the county will take the necessary actions required to decrease expenditures and/or augment expenditure growth with new revenues.

WHAT COULD MAKE THE RATING GO UP:

-Successful management of expenditures allowing for structurally-balanced budgets

-Implementation of new and recurring revenues

-Rebuilding reserves to historical levels over the medium term

WHAT COULD MAKE THE RATING GO DOWN:

-A further decline in reserves as a percentage of revenues

-Failure to manage expenditures and increase recurring revenues

-Adoption of structurally imbalanced budgets

KEY STATISTICS

2010 Population: 448,734 (6.0% increase since 2000)

2010 Equalized Value: $51.9 billion

2010 Equalized Value Per Capita: $115,659

1999 Per Capita Income (as % of NJ and US): $26,339 (98% and 122%)

1999 Median Family Income (as % of NJ and US): $67,481 (103% and 135%)

2000 Median Housing Value as % of State Median: 80%

Unemployment Rate (December 2010): 8.1%

Overall debt burden: 3.2%

Payout of principal (10 years): 76.3%

2010 Current Fund balance: $13.4 million (5.6% of Current Fund revenues)

Post-sale Parity Debt Outstanding: $310.28 million

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

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

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

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, Inc.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aa2 RATING WITH STABLE OUTLOOK TO BURLINGTON COUNTY BRIDGE COMMISSION'S (NJ) $10 MILLION COUNTY-GUARANTEED LEASE REVENUE REFUNDING BONDS, SERIES 2011
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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