AFFIRMS Aa3 RATING ON COUNTY'S LONG-TERM GO DEBT
Hudson (County of) NJ
County
NJ
Moody's Rating
ISSUE | RATING |
|---|
Tax-Exempt County Guaranteed Pooled Notes, Series 2011G-1 | Aa3/MIG 1 |
Sale Amount | $34,607,700 |
|---|
Expected Sale Date | 01/05/11 |
|---|
Rating Description | Bond Anticipation Notes |
|---|
|
Federally Taxable County Guaranteed Pooled Notes, Series 2011G-2 | Aa3/MIG 1 |
Sale Amount | $15,750,000 |
|---|
Expected Sale Date | 01/05/11 |
|---|
Rating Description | Bond Anticipation Notes |
|---|
|
Moody's Outlook Negative(m)
Opinion
NEW YORK, Jan 4, 2011 -- Moody's Investors Service has assigned MIG 1 ratings to the Hudson
County Improvement Authority's (NJ) $34.6 million Tax-Exempt County-Guaranteed
Pooled Notes, Series 2011G-1 and $15.8 million Federally Taxable
County-Guaranteed Pooled Notes, Series 2011G-2. Proceeds of the tax-exempt notes
will fund loans to the Cities of Jersey City (G.O. rated A2/negative outlook,
$11.2 million) and Union City (G.O. rated A3, $11.8 million), the Township of
Weehawken (G.O. rated Ba1, $6.6 million), the Town of West New York ($1.9
million) and the Town of Harrison ($3.1 million G.O. rated Baa1/negative, $3.1
million). The taxable notes will fund a loan to the Weehawken Parking Authority
($15.8 million). While the notes are expected to be repaid from borrower loan
repayments, the ultimate security for this issue is derived from Hudson County's
absolute and unconditional obligation to cure any deficiency in the Debt Service
Fund prior to note maturity, and the authorization to issue county general
obligation bonds for this purpose pursuant to a Guaranty Ordinance.
RATINGS RATIONALE
The MIG 1 rating factors in the county's long term credit quality, satisfactory
history of market access, and sound mechanics under the county guaranty to allow
timely repayment of the current notes at their January 19, 2012 maturity.
Affirmation of the county's long-term general obligation rating of Aa3 reflects
the county's substantial, expanding tax base and our expectation that the county
will maintain a financial position supported by conservative management of
declining, economically sensitive revenues and limited reliance on one-time
revenue sources. The negative outlook reflects the county's exposure to
short-term market volatility as county and county-guaranteed short-term notes
and bonds, amounting to $320 million, represent approximately one-third of total
outstanding debt and take the form of maturities ranging from $27 million to
$163 million. In addition, the negative outlook also reflects the county's
exposed risk to the authority's relatively stressed solid waste system
through the guarantee of outstanding debt issuance.
HUDSON COUNTY IMPROVEMENT AUTHORITY CONDUIT ISSUER
Hudson County Improvement Authority (HCIA) is a conduit issuer and has no
independent taxing authority. The current notes are expected to be repaid from
borrower loan payments, which are general obligations in the case of the
municipalities. The MIG 1 rating is based on the ultimate security provided by
Hudson County's obligation to fund any insufficiency in the Debt Service Fund
prior to note maturity. Borrower loan payments are due to the trustee 10 days
before the current note matures. In the event of non-payment by any
participant, the trustee must notify the participant, the county and the
HCIA within one business day. The county is required to cure any deficiency in
the Debt Service Fund no later than two days prior to note
maturity. Importantly, the guaranty requires that borrowers either execute a
purchase contract for renewing outstanding notes 30 days prior to note maturity
with a delivery date no later than 10 days prior to note maturity (loan payment
date), and/or provide notice to the county that rather than renewing outstanding
notes it will pay principal and interest on outstanding debt no later than 10
days prior to maturity. Also, the county's Guaranty Ordinance, adopted August
13, 2009, authorizes the issuance of county general obligation debt for this
purpose. Moody's believes this structure gives the county sufficient time to
appropriate for debt service, if necessary. Also, the county has demonstrated
its ability to access the capital markets, having received two to six bids on
its three most recent competitive note sales (through January 2010) and two bids
on its most recent taxable
competitive sale (sold unrated September 2008).
SUBSTANTIAL TAX BASE WITH BELOW AVERAGE WEALTH LEVELS
Moody's expects continued growth in the county's substantial $66.8 billion tax
base (estimated for 2010) given ongoing development, albeit at more moderate
levels, as the county has been impacted by the slowing residential housing
market. The county benefits from its location directly across the Hudson River
from New York City (rated Aa2/stable outlook) as well as the significant
development and available employment within the county. The county has an
excellent transportation network, including highways, railroad, commuter rail,
ferry and underground train service to New York City, all of which support the
flow of residents to and from New York. After September 11, 2001, many New York
City-based companies, including Goldman Sachs (senior unsecured debt
rated A1/negative outlook), UBS (long term debt rated Aa3/negative outlook) and
Credit Suisse First Boston, moved all or a portion of their operations to the
county. The economic activity along the waterfront in Jersey City (G.O. rated
A2/stable outlook) is notable, although some of these properties have been
granted multi-year PILOT contracts and therefore are not included in the
county's current tax base valuation. Other municipalities in the county,
including Bayonne (G.O. rated Baa1/negative outlook), Hoboken (Guaranteed
Hospital Revenue Bonds rated Baa3), West New York (no rating) and Harrison (G.O.
rated Baa1/negative outlook), have begun to implement redevelopment plans, which
are expected to spur additional growth in the medium term.
Growth in equalized values, which had averaged a strong 16.9% annually between
2003 and 2008, slowed considerably to a modest 2.8% in 2009, reflecting the
economic recession and housing market downturn. Growth is expected to remain
modest over the near term as development continues to be dampened by current
economic conditions, although officials report some recent stabilization of
housing prices. Added and Omitted Tax revenues, which reflect properties added
during the course of the year, increased significantly in 2008 ($4.8 million as
compared to $2.8 million in 2007), evidencing a combination of new development
and properties in Jersey City that were formerly making PILOT payments
coming onto the tax rolls. This new revenue continued at a moderate pace in 2009
and 2010, with growth of $1.7 million and $2.8 million, respectively. A solid
equalized value per capita of $114,701 only partially reflects the quality of
development, as much of the new real estate is not yet on the tax rolls.
Socio-economic indicators fall 20% to 30% below state levels and the poverty
rate of 15.5% as of the 2000 Census is the second highest in the state. The
October 2010 unemployment rate of 8% is slightly above state and below national
medians (7.7% and 9%, respectively) and a marked decrease from a year ago when
unemployment equaled 9.5%.
STABLE, ALBEIT NARROW, RESERVE LEVELS
Moody's expects the county to maintain its Current Fund balance at
approximately the current level in fiscal 2010 and 2011 given a four-year
track record of maintaining reserves between 5% and 6% and the county's stated
commitment to maintaining structural balance, as reflected in annual moderate
property tax increases and conservative budgeting of economically sensitive
revenue sources. The county ended fiscal 2008 with a Current Fund balance of
$24.3 million (5.27% of revenues) after fully replenishing $22 million of
appropriated fund balance in the budget and adding $1.8 million to
reserves. Notably, revenues from the Register of Deeds exceeded budgeted
levels by more than $500,000, reflecting a conservative approach to budgeting of
this economically sensitive revenue stream (budgeted at $9.4 million as compared
with $13 million in actual receipts in 2007). This differentiates the county
from other counties, many of whom experienced shortfalls in this area in 2008.
Sources of fund balance replenishment included surplus budgeted revenues
($2.4 million), particularly related to housing federal inmates and the county's
jail facility, the receipt of non-budgeted revenues ($6.7 million), and the
cancellation of current year appropriations, prior year appropriation reserves,
and contracts and commitments ($3.2 million, $4 million and $4.5 million,
respectively). The county receives approximately one-half of Current Fund
revenues from property taxes, which local municipalities are responsible for
remitting to the county in full, thereby ensuring a high level of predictability
for its major revenue source.
Fiscal 2009 operations resulted in a modest increase in the Current Fund balance
of $243,000 after replenishing $23.8 million of appropriated surplus.
Consequently, reserves grew to a solid $24.5 million, or 5.21% of revenues.
Sources of replenishment included over-performance of anticipated revenues (by
approximately $1.5 million) driven by strong results at the county's hospital,
the receipt of unanticipated revenue from housing state and federal inmates at
the county's jail facility ($4.5 million), the cancellation of current year
expenditures ($6.7 million) largely resulting from vacant positions
(approximately 350 positions), , and the cancellation of prior year
appropriation reserves in line with recent trends. Register of Deeds revenues
were budgeted to decline to $6.8 million (compared with actual collection of
$10.06 million in 2008), in keeping with recent past practice.
These economically sensitive revenues came in close to budget for the
year. Fiscal 2009 operations reflect the deferral of a portion of the
county's pension contribution ($6.8 million) as allowed by state law in 2009.
Year-to-date fiscal 2010 operations indicate full replenishment of $24 million
of appropriated reserves and a modest addition to fund balance. Despite
significant increases in pension costs of approximately $7 million (resulting
from the deferral in 2009) and health benefit costs of approximately $5 million,
total appropriations for 2010 declined by 1.3% (budget to budget), reflecting
work force reductions through attrition and hiring freezes. Given year-to-date
figures, appropriated fund balance is expected to be replenished with the
payment received from a refunding earlier in the year and non-budgeted revenues
from additional prisoner inmates, in conjunction with traditional sources of
replenishment.
DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE; SIGNIFICANT EXPOSURE
TO COUNTY-GUARANTEED DEBT
Moody's expects that the county's above average overall debt burden (1.3%) will
remain manageable given limited future borrowing plans, ongoing tax base
expansion and below average amortization of debt (70.7% repaid within 10 years).
We also note the county's large amount of guaranteed short- and long-term debt
(53% of total outstanding debt), particularly $39.4 million of
county-guaranteed Harrison Stadium Land Acquisition Special Obligation Capital
Appreciation Bonds, Series 2006 A-1 and A-2 (G.O. rated Aa3/negative outlook).
Although the county has not been called upon to pay debt service for these
bonds, the development site is not generating sufficient PILOT payments to cover
debt service as intended, and Harrison (G.O. rated Baa1/negative outlook) has
paid this year's debt service with short-term notes issued through
the authority. The town is uncertain at this point if it will utilize short-term
borrowing to pay debt service related to these bonds in 2011. We believe that
the county may be called upon to make payment.
Debt service on bonds accounted for just 3.4% of fiscal 2009 expenditures,
reflecting the fact that the county has financed a significant portion of its
infrastructure through lease purchase agreements (approximately $286 million
outstanding as of September 2010). In addition to guaranteed BANs and short-term
bonds of $320 million, the county has guaranteed $126.4 million of capital
improvement bonds issued by the Hudson County Improvement Authority, which is
included in the debt burden even though debt service is expected to be repaid
from the stressed solid waste enterprise system and the Town of Harrison. We
view the large amount guaranteed debt, over 50% of the county's total
outstanding debt, as a potential risk to financial stability should any one
guaranty be called upon from the currently challenging environment.
WHAT COULD CHANGE THE RATING UP (REMOVAL OF NEGATIVE OUTLOOK):
- Curtailed use of guaranteed debt
-Positive financial performance of the solid waste system
- Growth in taxable assessed valuation over the medium term
-Increased Current Fund balance
- Increased liquidity
- Accelerated payout of debt burden
WHAT COULD CHANGE THE RATING DOWN:
-Increase in guaranteed debt or short-term debt
-Poor financial performance of solid waste system
-Decreased market appetite for Hudson County-guaranteed short-term debt
-Failure to pay county-guaranteed debt service payments should the need arise
- Material multi-year declines in fund balances and liquidity
- Significant growth in the county's direct debt burden
KEY STATISTICS
2000 Population: 601,146
2007 Population (est.): 598,160
20010 Equalized Value (estimated): $66.8 billion
2010 Equalized Value Per Capita: $111,524
1999 Per Capita Income (as % of State and US): $21,154 (78% and 98%)
1999 Median Family Income (as % of State and US): $44,053 (67% and 88%)
Direct Debt Burden: 1.4%
Amortization of Principal (10 years): 70.7%
Fiscal 2008 Current Fund balance: $24.3 million (5.27% of Current Fund revenues)
Fiscal 2009 Current Fund balance: $24.5 million (5.2% of Current Fund revenues)
Long term G.O. debt outstanding: $305 million (approximately $230 million rated
by Moody's)
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
Andy Moleon
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
250 Greenwich Street
New York, NY 10007
USA
MOODY'S ASSIGNS MIG 1 RATING TO HUDSON COUNTY IMPROVEMENT AUTHORITY'S (NJ) $50.4 MILLION IN COUNTY-GUARANTEED POOLED NOTES, SERIES 2011G; OUTLOOK IS NEGATIVE
