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MOODY'S ASSIGNS MIG 1 RATING TO BURLINGTON COUNTY BRIDGE COMMISSION'S (NJ) $25.1 MILLION PROJECT NOTES (SOLID WASTE PROJECT), SERIES 2010

28 Sep 2010

AFFIRMATION OF Aa2 RATING WITH STABLE OUTLOOK APPLIES TO $472.2 OF OUTSTANDING LONG-TERM COUNTY GO AND COUNTY-GUARANTEED DEBT

Burlington (County of) NJ
County
NJ

Moody's Rating

ISSUE

RATING

Project Notes (Solid Waste Project), Series 2010

MIG 1

  Sale Amount

$24,100,000

  Expected Sale Date

10/12/10

  Rating Description

General Obligation Notes

 

Opinion

NEW YORK, Sep 28, 2010 -- Moody's Investors Service has assigned a MIG 1 rating to Burlington County Bridge Commission's (NJ) $25.1 million Project Notes (Solid Waste Project), Series 2010.

RATINGS RATIONALE

Concurrently, Moody's has affirmed the Aa2 rating with a stable outlook on $472.2 million of long-term county and county-guaranteed debt outstanding. The notes are ultimately secured by the county's general obligation unlimited tax pledge, pursuant to an Improvement Lease and an Equipment Lease agreement between the county and the commission. Note proceeds will retire $19.6 million of 2009 Project Notes (due on October 13, 2010) and provide $5.5 million in new money financing to complete the landfill expansion project. The MIG 1 reflects the county's long term credit characteristics, a strong history of market access, and the one-year note maturity.

The Aa2 rating reflects the county's large tax base with average wealth levels, moderate financial condition with satisfactory reserves, and manageable 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. Reserves may decline further in the near term given the appropriation of 60% of the 2008 Current Fund balance in the 2010 budget, which will likely be difficult to replenish given a tighter budget and the ongoing economic recession that has impacted county clerk fees, interest earnings, and added and omitted taxes (key sources of historical fund balance replenishment). Future fund balance appropriation may be difficult to replenish given additional expenditure pressures from growing pension and healthcare liabilities and the 2% state cap on raising the property tax levy.

NOTES BACKED BY COUNTY GO UNLIMITED TAX PLEDGE

The notes are secured by the county's annual lease payments to the commission under two lease agreements, an Improvement Lease and an Equipment Lease. The county has absolutely and unconditionally pledged its general obligation ad valorem taxing power to secure its lease payments that are due on the note's maturity date of October 11, 2011.

DEMONSTRATED MARKET ACCESS

Assignment of the MIG 1 rating factors in a favorable history of competitive bids on previous county borrowings and the county's strong Aa2 long-term rating. The bridge commission has historically negotiated its bond and note sales, but the county received six bids on its September 2010 note sale, and nine bids on its September 2009 note sale. This history, coupled with the strong long-term rating, indicates an ability to refund these notes at their October 11, 2011 maturity date.

NEAR-TERM BUDGETARY PRESSURE MET WITH EXPENDITURE REDUCTIONS

The stable outlook reflects our expectation that management will alleviate near-term budget pressure stemming from recessionary declines in taxable values, imposition of a statewide 2% cap on property tax levy growth, and growing expenditure costs associated with salaries and employee benefits, with reduced expenditures, despite recent narrowing of the county's reserves. Current Fund balance declined to $12.9 million in fiscal 2009 from $28.7 million in fiscal 2003, resulting in a decrease in reserves as a percent of revenues from a satisfactory 14.3% in fiscal 2003 to an adequate 5.2% in fiscal 2009. Favorably, management has undertaken efforts to cut recurring expenditures, including department consolidation and a substantial amount of layoffs, as well as raising new recurring revenues through interlocal agreements and indirect cost charge backs to the library for administrative services provided. Notably, however, the county decreased its tax rate in its fiscal 2010 budget, which combined with declining in equalized value, caused the levy to decrease by $2.1 million - the levy's third consecutive year of decline. Had the county increased its levy to the maximum allowable 4%, it would have generated an additional $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.

In fiscal 2008, the county utilized $6.8 million of its reserve appropriation, decreasing Current Fund balance to $16.3 million (an adequate 6.8% of Current Fund revenues). The decline reflects the inability to replenish appropriated reserves given weakening in economically sensitive revenues that have recently served as key replenishment sources. 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 given declining replenishment sources and tighter budgets. In fiscal 2009 (ended December 31), the county's Current Fund balance decreased by $3.5 million to $12.9 (an adequate 5.2% of Current Fund revenues), due to a late grant reimbursement from the state for approximately $4.5 million. Without this late transfer, operations would have been balanced in fiscal 2009. Fiscal 2009 operations replenished $8.2 million of the reserve appropriation from the liquidation of lapsed appropriations ($3.2 million), the cancellation of reserves ($1.8 million), added and omitted taxes ($1.6 million), and non-budgeted revenues ($1.8 million). Notably, results also factor in underperforming economically sensitive county clerk's fees, indicative of the slowing real estate market, and interest earnings from lower investment returns.

The adopted 2010 budget, which included a $7.5 million reserve appropriation, declined by approximately $3 million or 1.8% (budget-to-budget), due to expenditure cuts primarily driven by layoffs and wage freezes which closed budget gaps created in prior years by the use of one-time expenditure reductions or revenues. Notably, the introduced budget assumes that the county will reduce staffing needs 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. An outstanding contract with correctional workers presents an operating risk should an arbitrator award more than the 0% budgeted increase in fiscal 2010.

Given the county's heavy reliance on property taxes (65.8% of fiscal 2009 operating revenue) and the new state cap on this important revenue stream, Moody's believes the county's future budgets will be pressured. No levy increase has occurred since fiscal 2007. Moody's believes other revenues may remain flat or increase at very modest levels, at best, providing limited revenue sources for budgetary growth or reserve augmentation. Our affirmation of the Aa2 rating and stable outlook reflect Moody's belief that the county will take the necessary actions to decrease expenditures and/or augment expenditure growth with new revenues. Future credit reviews will factor in management's ability to generate recurring expenditure savings and raise recurring revenues to structurally balance and stabilize financial operations while augmenting reserves to historically satisfactory levels.

SIZEABLE PRIMARILY RESIDENTIAL TAX BASE

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%, reflecting both new construction and market value appreciation despite softening to 3% in 2009. The county projects that equalized value will decrease 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 Aa2/negative), 30 minutes from Philadelphia (GO rated A1/negative), 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 4,630 employees; PHH Mortgage, with 4,500 employees; and TD Bank, N.A. (issuer rating Aa2) 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 are expected to gain 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 (9.1% in June 2010 compared to 9.5% and 9.6% 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 $117,793 (85.8% of the state median).

MANAGEABLE DEBT BURDEN WITH RAPID AMORTIZATION OF PRINCIPAL

Moody's expects that the county's above-average debt burden (3.2% overall; 0.6% direct) will be contained given rapid amortization of principal and moderate future borrowing plans. In fiscal 2009, 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 (80% retired within 10 years). The county's capital program, which is approximately 25% smaller than last year's program, identifies $74.6 million of capital needs, the largest component of which relates to road, bridge, and drainage system projects (70%). The county typically issues bond anticipation notes for capital needs, permanently financing them over time as market conditions dictate. The county has no variable rate debt or derivative agreements.

The county owns and operates the Burlington County Resource Recovery Complex for which debt service has been subsidized by state grants ranging from $1.3 million to $5 million per year since 2000. The county expects to receive $1.3 million from the state, which would not represent a cut in aid. The state, however, has initially indicated that it will not provide any support to the county, and has reduced its solid waste grant pool by approximately 40%. In 1999, 2000 and 2001, the county supported the utility with monies from its Current Fund, but no longer supports its recycling operations. The county has solid waste delivery agreements with 37 out of its 40 constituent municipalities and the Fort Dix military installation, in addition to processing commercial waste. Moody's expects that the county will continue to manage its utility from a combination of increased servicing fees and additional state grants.

Outlook

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 appropriation and limited growth of recurring revenues, the county will take the necessary actions 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 in 2010

-Failure to manage expenditures and increase recurring revenues

-Adoption of structurally imbalanced budgets

KEY STATISTICS

2007 Population: 423,394 (7.2% increase since 2000)

2010 Equalized Value: $51.9 billion

2010 Equalized Value Per Capita: $116,139

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 (June 2010): 9.1%

Direct debt burden: 0.6%

Overall debt burden: 3.2%

Payout of principal (10 years): 80%

2008 Current Fund balance: $16.3 million (6.8% of Current Fund revenues)

2009 Current Fund balance: $12.9 million (5.2% of Current Fund revenues)

Post-sale Parity Debt Outstanding: $540.2 million

The principal methodology used in rating Burlington County Bridge Commission, NJ was Bond Anticipation Notes and Other Short-Term Capital Financings rating methodology published in May 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's 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

Seth Klempner
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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New York, NY 10007
USA

MOODY'S ASSIGNS MIG 1 RATING TO BURLINGTON COUNTY BRIDGE COMMISSION'S (NJ) $25.1 MILLION PROJECT NOTES (SOLID WASTE PROJECT), SERIES 2010
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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