Fitch Rates Ocean County, NJs GOs 'AAA'; Outlook Stable
--$38,720,000 general improvement bonds series 2015;
--$3,535,000 college capital improvement bonds series 2015.
The bonds are scheduled for competitive sale on Nov. 17, 2015. Proceeds of the bonds will finance various facility and road improvements, public safety communication upgrades, and land acquisition, among other projects.
Fitch currently rates approximately $394 million of outstanding GO bonds of the county and $37 million of revenue bonds issued by the Ocean County Utilities Authority (the authority) backed by the county's GO pledge 'AAA'.
The Rating Outlook is Stable.
The bonds are general obligations of the county backed by its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
STABLE FINANCIAL POSITION: The county's stable financial performance reflects a history of conservative budgeting, consistent moderate tax rate increases, careful expenditure management and prudent capital planning. These strengths offset the county's somewhat low reserve levels.
AFFORDABLE DEBT AND RETIREE LIABILITIES: Debt metrics are low to moderate overall and total carrying charges, inclusive of debt and retiree benefit expenses, consume an affordable share of the operating budget. Fitch views future capital needs and debt issuance plans as very manageable.
SEASONAL ECONOMY: The county's location on the eastern seaboard near two major east coast employment and population centers helps drive an economy rich in tourism-based activity and residential construction. The sizeable and moderately affluent tax base had weakened due to the impact of the recession and Superstorm Sandy, but has begun a modest recovery.
STABLE FINANCIAL PERFORMANCE: Fitch expects economic factors to continue to improve, debt fundamentals to remain largely stable and that the county will continue to manage its finances to maintain structural balance and an adequate to improving reserve cushion. The rating is sensitive to performance outside of Fitch's stated expectations.
Ocean County encompasses 634 square miles of eastern New Jersey, including 45 miles of oceanfront and barrier islands. The townships of Lakewood, Toms River, Brick, and Jackson are located in the county in addition to popular shoreline communities Point Pleasant, Seaside Heights, and Long Beach Island. Residents benefit from access to two major employment centers with their location approximately equidistant (60 - 70 miles) between New York and Philadelphia. The county experienced solid population growth of 15% since 2000 and stood at 586,301 in 2014.
CURRENT FUND OPERATIONS REMAIN STABLE - RESERVES ARE MODEST
The county's financial operations and reserves remain stable despite the varied challenges associated with the recovery from the recession and Superstorm Sandy and a taxable base that had declined. The county closed 2014 with a fund balance of $36.4 million representing 8% of current fund spending. Management continues to control spending and impose constraints on new hires leading to positive expenditure variances. Anticipated and unanticipated revenues also exceeded expectations helping contribute to a modest $0.8 million surplus.
The fund balance has been fairly stable following consecutive draws from 2006 - 2009 for capital purposes although Fitch considers the existing fund balance as somewhat low. The county regularly funds capital on a pay-go basis, providing additional budgetary flexibility. Capital spending in 2014 was $16 million, representing 3% - 4% of ongoing spending. Fitch expects the county to begin gradually rebuilding reserves along with the continued economic progress and a culmination of Superstorm Sandy recovery efforts.
The county's willingness to increase the property tax rate has played an important role in its recent financial stabilization. Annual tax rate increases averaged better than 6% for 2010 through 2014 as the tax base experienced a cumulative decline of 18% during that period. The tax rate was increased by 2.4% in 2015 as the tax base increased for the first time since 2009, by 1.7%. Property taxes fund a high 78% of the 2015 current fund budget. The county's tax burden remains amongst the lowest in the state despite the tax rate increases and the levy is fully guaranteed by underlying municipalities eliminating risk to delinquent collections or non-payment. Tax levy growth is restricted to 2% annually under state law with limited exclusions for debt service as well as certain increases in pension and health care costs.
The adopted 2015 budget of $413 million is down by $23 million from the prior year as certain federal and state grant programs related to Superstorm Sandy are eliminated. The amount of tax levy under the cap is $1.8 million and the aggregate carry forward is $7.7 million available for use with the 2016 budget if necessary. The amount of fund balance or surplus appropriated to balance the budget has steadily declined from $24.3 million or 6.9% of spending in 2009 to $16 million or 3.9% in 2015. The 2015 budget includes a notable $16.4 million for pay-as-you-go capital in addition to a modest $400,000 in contingency. Management expects the fund balance to remain relatively stable at year-end, reflecting conservative revenue estimation, as prescribed by state law, and careful expenditure management.
SOUND DEBT POSITION
Overall debt levels remain manageable at $3,196 per capita and 2.0% of market value, aided in part by the county's consistent pay-as-you-go capital funding and its rapid repayment of debt, with 73% of outstanding principal amortizing over the next 10 years. As a result, annual debt servicing costs fall sharply from $48.2 million in 2015 (or 11.7% of budgeted appropriations) to $36 million by 2022 and $11.8 million by 2030 offering sufficient capacity to fund future capital needs. Future issuance plans will average $25 million-$30 million annually, which is less than or close to the principal amount scheduled to be repaid and therefore should not negatively impact debt metrics.
All employees and retirees participate in the state administered Police and Firemen's Retirement System (PFRS) or the Public Employee's Retirement System (PERS). The funded status of the PFRS and PERS local portions was 76% and 74% respectively, as of June 30, 2014. Using Fitch's assumed 7% investment rate of return, the funded levels decline to an estimated 69% and 67%, respectively. Collectively the cost of servicing debt, pension, and other post-employment benefits (OPEB) represents a moderate burden on the county's budget at 16% of 2014 current fund spending.
RESIDENTIAL TAX BASE AND TOURISM DRIVE ECONOMY
The performance of Ocean County's economy and its predominantly residential tax base (nearly 86% of total assessed valuation) leans heavily on the attractiveness of its extensive oceanfront property and popularity of its shore communities to vacationers from New Jersey, New York, and Philadelphia. Tax base growth registered 1.7% in 2015 following five years of declines as a result of the recession and Superstorm Sandy. County officials preliminarily estimate growth of 2.3% to $94.5 billion for 2016. Estimated market value per capita is an impressive $158,000.
In addition to hospitality, the county also has a strong presence in healthcare and government serving a sizeable and growing year-round population. Median household income registers a healthy 115% of the U.S. standard, although only 85% of the wealthy state. In Fitch's view these strengths are weighed against risk inherent in the concentrated nature of employment related to the tourism sector and relative absence of other industry throughout the county.
The economy proved somewhat more vulnerable during the recession, with unemployment spiking at 10.2% in 2010 compared to 9.4% in N.J. Job growth has been positive but somewhat tepid between 2010 and 2013 but registered 1.9% in 2014. The unemployment rate in August was 5.7% compared to 6.7% the prior year reflecting employment growth of less than 1% and a 0.4% drop in the labor force.
A portion of the Joint Base McGuire-Dix-Lakehurst is located in western Ocean County; the base is a major economic driver and second largest employer in the state with approximately 44,000 employees. The potential for another round of base realignment and closure and continuing federal military spending cuts are risks that bear close monitoring.