OREANDA-NEWS. July 28, 2015.  Fitch Ratings assigns an 'AA+' rating to the following lease revenue bonds to be issued by the Mercer County Improvement Authority, NJ (the authority):

--Approximately \\$35,000,000 lease revenue bonds (Courthouse Annex Project), series 2015.

The bonds will sell via negotiated sale the week of August 3. Proceeds will be used to finance the completion of renovations and upgrades to the Mercer County (the county) courthouse annex.

In addition, Fitch affirms its 'AA+' rating on the county's outstanding series 2015 general obligation bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are a direct obligation of the authority and backed by a lien on the pledged property including revenues derived from lease rental payments paid by the county backed by its unlimited taxing authority. The lease rental payments made by the county pursuant to a lease agreement with the authority are structured to at least equal principal and interest payments on the bonds and are a general obligation of the county and are not subject to appropriation.

KEY RATING DRIVERS

HEALTHY FINANCIAL PROFILE: Management's conservative budgeting practices, historical revenue increases and expenditure controls support Mercer's recent growth in reserves to levels considered adequate by Fitch.

AFFLUENT, BROAD AND DIVERSE ECONOMY: The county's diverse economy benefits from the presence of major higher education and healthcare institutions, as well as large pharmaceutical and financial services companies. Income and employment metrics are strong evidenced by high wealth indicators and unemployment rates below state and national averages.

MANAGEABLE DEBT AND CAPITAL NEEDS: Overall debt levels are moderate. Future borrowing and capital needs are manageable and outstanding debt is retired rapidly. Rising costs associated with pension and healthcare are the drivers of spending growth; however, the cost of servicing these long-term liabilities in addition to debt is still considered moderate.

RATING SENSITIVITIES

STABLE FINANCIAL PERFORMANCE: The 'AA+' rating reflects Fitch's expectation that economic and debt fundamentals will remain largely stable and that the county will continue to manage its finances to maintain structural balance and an adequate reserve cushion. The rating is sensitive to performance outside of Fitch's stated expectations.

CREDIT PROFILE

Mercer County is situated in the center of the state equidistant between New York City and Philadelphia. The county has an estimated 2014 population of 371,537 which has grown 5.9% since 2000. The capital city of Trenton along with Hamilton Township account for just under half of the county's population.

DIVERSE AND AFFLUENT ECONOMY

The county's above-average wealth levels reflect in part the several wealthy suburban communities located within the county, including Princeton, West Windsor, Hopewell and Pennington. Median household income registers 103% of the state and 139% of the national levels. Such levels are skewed downward in part due to Trenton's below-average wealth levels (roughly 50% of state levels) and high poverty rate (26.5% for 2013).

Unemployment as of April 2015 was 5.3% in the county, unchanged from the same period last year, and below state (6.2%) and national (5.4%) levels. County employment growth recovered in 2012 rising 0.9%, and again in 2013 by 1.2% and 1.5% in 2014, reflective of strong hiring in professional/business services and a recovering real estate market. Additionally, the opening by Amazon of a new warehouse in Robbinsville last year contributed to 1,400 new jobs. Overall employment growth in the Trenton-Ewing NJ metropolitan statistical area (MSA) had the highest percentage change year-over-year through November 2014 out of all MSAs in the state according to IHS, Inc.

The county features a broad and diverse economic base with representation from the higher education, healthcare, pharmaceuticals, telecommunication and financial services sectors. State government dominates Trenton's economy with the state employing 22,500 employees or just over 10% of total 2014 county employment. Other substantial employers include Princeton University (6,011 employees), Bristol Myers Squibb (6,000), Capital Health Systems (3200), and NJ Manufacturing Insurance Co. (2,478).

The county had a large tax base of \\$42 billion on an equalized basis in 2014 and equals a solid \\$113,000 per capita. Assessed values experienced moderate declines due to the housing downturn but increased modestly in 2015 due to a rebound in housing prices and some commercial development. Home prices throughout the county grew 4.4% on a year-over-year basis through December 2014 according to Zillow, Inc., but have experienced a moderate decline during the first four months of 2015. The county's tax base is diverse with the 10 largest taxpayers representing only 5% of taxable values.

CONSERVATIVE FISCAL MANAGEMENT LEADS TO SOUND FINANCIAL PERFORMANCE

The county has a history of generally stable operating results supported by careful expenditure management and moderate tax rate increases. The implementation of the state's new 2% tax levy cap in fiscal 2011 created some budgeting challenges but management has made adjustments to maintain service levels and restore reserves to adequate levels. The 2% tax levy cap excludes payments for debt service, capital improvements, and pension and healthcare cost increases in excess of 2% from the prior year. Additionally, any new growth in the tax base is excluded from the calculation and any unused portion of the levy can be carried forward for three years. The state also passed a law in 2011 that limits an arbitrator's award of overall annual employee contract increases to 2% per year which has helped the county negotiate and control labor costs.

Fiscal 2013 results showed a \\$3.8 million (1.2% of spending) operating surplus increasing unrestricted current fund balance to \\$20.1 million or 6.5% of current fund spending. The positive results reflected in part positive overall revenue variances and medical costs savings. The county uses a cash/modified accrual basis of accounting in accordance with state requirements as opposed to GAAP accounting. When compared to those issuers who use GAAP accounting, the cash/modified accrual basis usually results in lower fund balance levels due to the typically larger current fund expenditure base and the requirement to carry over unexpended appropriation reserves for an additional year.

Fund balance levels have fluctuated from a high of 9% in 2008 to as low as 4.3% in 2008 when the recession occurred. Management has indicated its goal is to maintain reserves at close to the 7% level to maintain flexibility. The county maintains other reserve balances, although with restricted purposes, including open-space tax funds (\\$25 million at fiscal end 2014), as well as insurance (\\$3 million) and capital reserves.

The original 2014 budget totaled \\$305 million and included a 2.9% tax levy increase. Major expenditures included employee salary, healthcare and pension costs. The tax levy generated approximately 77% of current fund operating revenue (unaudited). The high percentage of tax revenues provide for better predictability and stability of revenues each year. Property tax revenues are insulated from declines in tax base valuation, since the state's tax cap laws are based on the prior year's levies, allowing for tax rate adjustments to remain revenue neutral. Tax collections for the county are guaranteed as taxes are collected at the local levy and remitted in full to the county on a quarterly basis.

Unaudited fiscal 2014 results show the county with a \\$1.4 million operating surplus negating the need to use any of the appropriated \\$12 million of fund balance. The county has a historical practice of using close to 50% of fund balance to balance its budget but tends to not have to use it due to conservative budget practices. The current fund balance is projected to increase to \\$21.5 million or approximately 7% of spending.

The fiscal 2015 budget of \\$303 million includes a \\$250 million tax levy which is down by \\$1 million. The tax rate was reduced by 3.3% from the prior year in part due to an increase in taxable values. The appropriation of fund balance was reduced by \\$1 million to \\$11 million. The tax levy was approximately \\$5.2 million under the 2% tax levy cap. When combined with the \\$2.5 million remaining from 2014 this results in a total of just under \\$7.8 million (or 2.5% of budget) of additional tax levy revenues over and above the tax levy cap available for the 2016 budget if needed. Management does not anticipate using this excess available revenue in 2016. Results to date for 2015 are tracking as expected according to management.

MODERATE LONG-TERM LIABILITIES; RAPID DEBT AMORTIZATION

Overall debt metrics are moderate at 3.4% of market value and \\$3,819 per capita. These ratios include county-guaranteed debt issued by the Mercer County Improvement Authority. Direct debt amortization is above average at approximately 65% over 10 years. Management has indicated its expectation for additional debt is approximately \\$20 million-\\$30 million per year for capital and maintenance costs, which is consistent with its history of past borrowings.

The county's carrying charges inclusive of pension and other post-employment benefits (OPEB) remain manageable accounting for an estimated 19% of spending. An increase in debt and pension related costs could cause this number to increase modestly but still remain manageable.

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 conservative 7% investment rate of return, the funded levels decline to an estimated 69% and 67%, respectively.

The county fully funds its pension contribution as required by the state plans and paid a combined \\$14.4 million to the plans in 2013. OPEB is offered through the state's plan and the county makes pay-as-you-go payments as required by the state. The county paid \\$7.8 million in 2013.