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Re: Fitch Rates Jersey City, NJ's Refunding Notes; Outlook Positive
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Of course they also rated Sub-Prime Mortgage paper AAA. How did that work out?

Posted on: 2010/6/6 10:35
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Fitch Rates Jersey City, NJ's Refunding Notes; Outlook Positive
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June 04, 2010 05:27 PM Eastern Daylight Time

Fitch Rates Jersey City, NJ's Refunding Notes (Real Property Tax Appeal) 'F1'; Outlook Positive

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'F1' rating to the following City of Jersey City, NJ (city) refunding notes (real property tax appeal [TARNs]) maturing June 24, 2011:

--$12.717 million series 2010B.

In addition, Fitch affirms the following rating:

--$457 million in outstanding general obligation (GO) bonds at 'A-'.

The Rating Outlook on the bonds is Positive.

The notes are expected to sell via competitive sale on June 9, 2010.

RATING RATIONALE:

--The 'F1' rating reflects the city's long-term credit characteristics as reflected in its 'A-' GO rating, the city's demonstrated market access, and the modest balance of outstanding TARNs (including this issue) relative to the budget.

--A high fixed cost base and limited reserves will continue to pressure the city's operating position.

--Budgeting practices do not lend themselves to timely financial planning.

--Employment and wealth levels are below-average.

--The debt burden is low and future capital needs appear manageable.

--The city continues to benefit from ongoing commercial and residential development in several areas of the city.

--The favorable geographic location of the city provides excellent access to Jersey City as well as transportation links to New York City.

WHAT COULD TRIGGER AN UPGRADE:

--Maintenance of sufficient financial flexibility with limited use of non-recurring measures.

--Management's ability to control expenditures, including those related to its long-term liabilities.

SECURITY:

The notes and outstanding bonds are general obligations of the city and the full faith and credit and unlimited taxing power of the city is pledged to the payment of the principal and interest on the notes.

CREDIT SUMMARY:

Located in Hudson County (GO bonds rated 'AA-' with a Stable Outlook by Fitch) just across the Hudson River from New York City, Jersey City continues to experience substantial growth as redevelopment efforts along its waterfront areas drive increased commercial, industrial, and residential investment. Equalized property values (EV) have grown by a strong 20.5% on an average annual basis since fiscal 2000, although EV declined slightly in fiscal 2009 due to the current downturn in the housing market nationwide. As a result, the city has seen an increase in tax appeals which has led to an increase in the city's issuance of TARNs. The city's population has been relatively stable since the 2000 census, increasing slightly to 241,114 in 2009. Due to the city's proximity to New York City, employment in the finance, insurance, and real estate (FIRE) sector exceeds state and national averages, and Jersey City counts several major investment and financial firms among its top employers. Depository Trust Company recently announced it will move 1,600 employees to the city by 2013.

The city's unemployment rate declined annually from 2002-2008, dropping from a high 8.8% in 2002 to 6.6% in 2008. However, unemployment trended upward in 2009 and was at 11.1% in March 2010, slightly higher than the state and national averages of 10.2%. Potential layoffs in the finance sector may cause unemployment rates to increase further given the city's concentration in the FIRE sector. Per capita money income in 2008 represented 86% of the state's high average and 109% of the national level.

The city's financial performance remains inconsistent, strained by rising health insurance and other employee-related costs. Chronically late budgets make officials' ability to anticipate and respond to shortfalls challenging although officials have taken strong measures during this fiscal year to reduce costs. A debt restructuring in 2006 provided debt service relief for the near- and mid-term, and helped to reduce the structural budgetary imbalance. Audited results for fiscal 2009 reflect an operating deficit of $14.4 million despite a pension payment deferral in the amount of $14.8 million, reducing the current fund balance to $16.5 million, or 2.5% of total spending with an unreserved fund balance of $12.3 million, or 1.9% of total spending. The city's 2010 budget, which was adopted on April 21, 2010, reflects significant expenditure reductions in personnel costs resulting in large part from 260 layoffs and 12 furlough days taken between January and June of 2010. In addition, a significant number of vacant positions in public safety resulting from a high number of early retirements have not been filled or will be eliminated. Additionally, the city finalized collective bargaining agreements with police and fire under which employees agreed to a less costly medical plan and increased co-payments for prescriptions, thus generating multi-million dollar savings to the city.

Jersey City's direct debt levels remain moderate as a result of strong increases in EV. The aggregate debt burden totals $2,633 per capita, or 2.9% of market value. Debt amortization is above average with 67% retired in 10 years. The city has not completed its actuarial study regarding other post-employment benefits (OPEB) in accordance with GASB 45 and reports that there is no information currently available as to amount of the liability. The city is currently funding its OPEB obligation on a pay-as-you-go basis at an annual cost of $66 million. The city's $130 million capital improvement plan (CIP) is manageable and is expected to be primarily debt funded, increasing the city's future debt levels. Debt issued on behalf of Jersey City's school district is currently issued and funded by the state. The city's school district is considered an Abbott district for state funding purposes, indicating its tremendous need for increased funding and educational improvements. Fitch's calculation of Jersey City's debt burden includes its GO backup pledge to Municipal Utility Authority (MUA) debt; however, the city has never subsidized debt service on bonds supported by MUA revenues. Annual water rate increases through fiscal 2015 are designed to ensure MUA's continued self-sufficiency.

Applicable criteria available on Fitch's website at 'www.fitchratings.com':

--'Tax-Supported Rating Criteria,' dated Dec. 21, 2009.

--'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.

Additional information is available at www.fitchratings.com

Posted on: 2010/6/5 13:24
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