Fitch Rates Ocean County, NJ's Refunding GOs 'AAA'; Outlook Stable

OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating to the following general obligation (GO) bonds of the county of Ocean, New Jersey (the county):

--$61,465,000 GO general refunding bonds, series 2015A;
--$2,665,000 GO refunding bonds series 2015B (AMT).

The bonds will be sold via negotiation during the week of Aug. 10. Proceeds will be used to refund a portion of the county's outstanding GO bonds for savings.

In addition, Fitch affirms its 'AAA' rating on approximately $394 million of outstanding GO bonds (multiple series) of the county and $37 million of revenue bonds (series 2006) issued by the Ocean County Utilities Authority backed by the county's GO pledge.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the county and are secured by the county's 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. Future capital needs and debt issuance plans are viewed 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.

RATING SENSITIVITIES

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.

CREDIT PROFILE
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 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. 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 2.9% in 2015 as the tax base is estimated to increase by 2%. Property taxes fund a high 70%-80% of the 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% 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% in 2009 to $16 million in 2014 and 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 reports the budget is performing as expected year to date.

SOUND DEBT POSITION
Overall debt levels remain manageable at $2,723 per capita and 1.8% 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 million in 2015 (or 11.6% of budgeted appropriations) to $36 million by 2020 and $24 million by 2026 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 conservative 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) represent 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 is estimated at 2% for 2015 following five years of declines as a result of the recession and Superstorm Sandy. 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 in March was 7.6% compared to 8.2% the prior year.

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.

Contact:

Primary Analyst
Kevin Dolan
Director
+1-212-908-0538
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004

Secondary Analyst
Michael Rinaldi
Senior Director
+1-212-908-0833

Committee Chairperson
Karen Ribble
Senior Director
+1-415-732-5611

Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope and IHS Global Insight.

Applicable Criteria
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.