OREANDA-NEWS. March 28, 2016. Fitch Ratings assigns an 'AA' rating to the following general obligation (GO) bonds to be issued by the County of Essex, NJ (the county):

--\\$24,445,000 general improvement refunding bonds, series 2016A;
--\\$6,940,000 county vocational school refunding bonds, series 2016B (New Jersey School Bond Reserve Act);
--\\$8,290,000 county college refunding bonds, series 2016C;
--\\$3,875,000 county college refunding bonds, series 2016D (County College Bond Act).

The bonds will be sold via negotiated sale on or about March 30. The bonds are being issued to refund a portion of the county's outstanding series 2007 vocational school bonds, series 2008A&B GO bonds, and its series 2010 GO bonds.

Fitch also affirms the following ratings for outstanding county obligations:

--\\$175 million outstanding GO bonds at 'AA';
--\\$368 million outstanding Essex County Improvement Authority (county guaranteed) bonds at 'AA';
--\\$65.8 million bond anticipation notes (BANs), series 2015 at 'F1+'.

A list of the individual Fitch-rated series of bonds is provided at the end of this press release.

The Rating Outlook is Stable.

SECURITY

The GO bonds and the BANs are backed by the county's full faith and credit and unlimited taxing authority. The county's vocational school bonds are additionally supported by the New Jersey School Bond Reserve Act; the series 2016D county college bonds are additionally supported by the state's County College Bond Act. The county unconditionally and irrevocably guarantees the payment of the Essex County Improvement Authority (ECIA) bonds and has pledged its unlimited taxing authority to bondholders.

KEY RATING DRIVERS

SOUND FINANCIAL MANGEMENT: Generally conservative budgeting and steady, moderate annual tax levy increases have led to growth in reserves providing for improved financial flexibility.

BROAD AND DIVERSE ECONOMY: The county remains an important hub for commercial activity, transportation, education and healthcare, and further benefits from its participation in the New York-Newark-Jersey City metropolitan statistical area.

MIXED ECONOMIC INDICATORS: Income levels slightly exceed national levels but fall below state levels. Unemployment rates have improved but remain slightly above state and national levels, reflecting the presence of an urban core in contrast to its wealthy suburban communities.

MANAGEABLE DEBT AND CAPITAL NEEDS: Overall debt levels are expected by Fitch to remain moderate based on future borrowing and capital needs and the very rapid retirement of outstanding debt. Rising costs associated with pension and healthcare is a driver of spending growth; however, Fitch considers the cost of servicing long-term liabilities manageable.

EXPECTED MARKET ACCESS: The 'F1+' short-term rating corresponds to the 'AA' rating on the county's outstanding GO bonds reflecting market access for long-term debt.

RATING SENSITIVITIES

CHANGE IN FINANCIAL PROFILE: 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.

CREDIT PROFILE

MAJOR COMMERCIAL CENTER; MIXED SOCIOECONOMIC METRICS

Essex County is situated in northeastern New Jersey approximately 10 miles directly west of downtown Manhattan. The county is densely populated and highly developed and has an estimated 2014 population of 795,723, up 1.5% since 2010.

The county includes a mix of wealthy suburbs around an urban core, including the city of Newark, which accounts for more than one-third of the county's population. Newark's weak income and unemployment metrics are balanced against the remainder of the county, which includes several wealthier suburban communities such as Milburn, Glen Ridge, and Livingston. As such, overall income and unemployment metrics are mixed. Median household income registers 103% of the U.S. standard but only 76% of the state. Unemployment as of December 2015 was 5.2% in the county, down from 6.9% the prior year, but above the state (4.3%) and nation (5%).

The county features a broad and diverse economic base with representation from the telecommunication, commercial aviation, higher education, health care, pharmaceuticals, and financial services sectors. Substantial employers include St. Barnabas Hospital (23,000), Verizon (17,100), Prudential Insurance (16,850), and Rutgers University-Newark (15,500). An excellent transportation infrastructure provides residents of the county with access to employment opportunities throughout the New York-Newark-Jersey City metropolitan statistical area (MSA). The MSA ranks as the largest employment base in the country with nearly 8.9 million non-farm jobs.

The county's tax base remains significant at \\$83 billion on an equalized basis in 2015 or close to \\$105,000 per capita. After an aggregate 16.5% decline since 2009 the tax base improved modestly in 2015 by 1.2%. Home prices throughout the county improved in 2014 and were up 4.2% through January 2016 year over year according to Zillow Group.

FISCAL 2014 OPERATING RESULTS INCREASE FUND BALANCE

The county has experienced generally stable to positive operating results the past six years supported by careful expenditure management and consistent moderate tax levy increases. Operating results for 2014 reflect a surplus of \\$15.7 million (net of appropriated fund balance) or 2% of spending resulting in an ending current fund balance of \\$63.7 million (8% of spending). The positive results reflect primarily the lapsing of previously appropriated reserves and revenues exceeding expenditures. These results reflect the third year of growth in reserves. The county discontinued its use of tax anticipation notes in fiscal 2014 as a result of the improvement in its cash position.

FISCAL 2015 RESULTS PROJECTED TO SHOW SURPLUS

Unaudited results for 2015 show another year end surplus, net of appropriated fund balance, of \\$12.7 million (1.6% of current fund spending). Results reflect primarily the lapsing of previously appropriated reserves and revenues exceeding expenditures, similar to the prior year.

The 2015 budget was based on an \\$8.1 million increase in the tax levy and a fund balance appropriation of \\$11.3 million. This appropriation of fund balance is an increase of \\$7.3 million over the \\$4 million amount appropriated in years 2012 through 2014. A portion (\\$5.3 million) of the use of fund balance will fund retroactive pension contributions to the state for prior periods during which labor contracts were unsettled (2008 through 2011). An additional \\$2 million was appropriated mostly to cover anticipated increases in snow removal costs. However, the positive operating results negated the need for the use of fund balance similar to the past three years.

FISCAL 2016 BUDGET INCLUDES MODEST TAX LEVY INCREASE

The 2016 current fund budget totals \\$769 million and includes the use of \\$12 million in surplus fund balance. A modest property tax levy increase of 1.9% is expected to generate approximately \\$9 million in additional revenues. Primary expenditure drivers are employee salaries and health insurance. Management continues to use conservative assumptions for local revenues and does not expect to have to use the appropriated fund balance.

Property taxes are the primary revenue source, contributing 55% of the budget. The statutory 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. The county has approximately \\$19 million (2.5% of budget) in excess available unused levy under the cap available for the 2017 tax year. The state's tax cap laws are based on the prior year's levies thereby mitigating the effect of a decline in valuation. The county's tax levy is 100% guaranteed from the county's municipal governments eliminating collection risk.

MODERATE LONG-TERM LIABILITIES; RAPID DEBT AMORTIZATION

Overall debt levels, net of self-supporting and state assistance, are moderate at 2.5% of market value and \\$2,560 per capita. These ratios include county-guaranteed debt issued by the ECIA. Debt ratios are expected by Fitch to remain moderate due to rapid principal amortization of 82% over 10 years and a manageable capital plan. The county's current capital plan, which is mostly debt funded, proposes spending \\$20 million annually through 2021.

Construction of the new Essex County Vocational School is expected to cost \\$163 million and be funded from debt. The state has approved debt service aid in the amount of 90% of the total costs. Future debt for this project is expected to be issued over the next two years.

The county administers the Essex County Employees' Retirement System (the county system) which has been closed to additional membership since the mid-eighties. The plan's liabilities were funded through the purchase of a group annuity using proceeds of a GO bond issued in 1989; however, the plan's assets were depleted in 2009 so the county has been funding the plan on a pay-go basis since. The 2016 budget contains an appropriation of \\$2.5 million which is actuarially forecast to steadily descend over the next several years.

All other 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 7% investment rate of return, the funded levels decline to an estimated 69% and 67%, respectively. The county contributed \\$29.8 million in 2014.

The county makes annual pay-go OPEB contributions totaling \\$17.2 million in 2014, equal to 35% of the annual required contribution.

The county's carrying charges inclusive of debt, pension and other post-employment benefits (OPEB) remain manageable accounting for an estimated 20% of spending. Growth in pension costs is expected to increase this ratio slightly. Fitch's concern for rising carrying costs is lessened by the fact that the majority of the carrying costs (12.4%) are for debt service and the county's debt is amortized at a very rapid rate.

Outstanding Fitch-rated county GO bonds:

--GO (Early Retirement Incentive) pension refunding bonds, series 2003;
--GO county college bonds, series 2004C;
--GO refunding bonds, series 2014;
--GO general improvement bonds, series 2014A;
--GO county vocational school bonds, series 2014B (New Jersey School Bond Reserve Act);
--GO county college bonds, series 2014C;
--GO county college bonds, series 2014D (County College Bond Act);
--GO general improvement bonds, series 2015A;
--GO county vocational school bonds, series 2015B (New Jersey School Bond Reserve Act).

Outstanding Fitch-rated Essex County Improvement Authority bonds:
--Project consolidation revenue bonds (refunding project), series 2004, 2005, 2006 and 2007;
--GO guaranteed lease revenue refunding bonds (sportsplex project), series 2005A and taxable revenue refunding bonds (sportsplex project), series 2005B.