Fitch Affirms Old Bridge Township, NJ's GOs at 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following general obligation (GO) bond rating for Old Bridge Township, New Jersey (the township) at 'AA':

--$23 million unlimited tax general obligation bonds Series 2002, 2002C, 2003A and 2008.

The Rating Outlook is Stable.

SECURITY

The bonds are unlimited general obligations of the township for which the township has pledged its full faith and credit.

KEY RATING DRIVERS

ADEQUATE FINANCIAL FLEXIBILITY: Despite weakened reserve levels and a state mandated cap on annual property tax levy growth, the township has maintained adequate financial flexibility achieved through a combination of revenue raising measures and expenditure reductions.

STABLE TAX BASE: The township's primarily residential tax base is stable and was minimally affected by the recent recession. Property tax collection rates are high, aided by successful tax lien sales. Modest new developments in both the residential and commercial sectors are a positive.

FAVORABLE LOCAL ECONOMY: Local indicators are positive with above average wealth levels; the township benefits from an advantageous location just south of New York City and with access to major transportation corridors.

CARRYING COSTS MANAGEABLE: Carrying costs including pension and debt service are average. State pension plans are funded at or below average which may drive increased pension contributions over time, which Fitch believes are absorbable.

CREDIT PROFILE

MAINTENANCE OF FINANCIAL FLEXIBILITY

The township's financial position remains stable despite the recent trend of drawdowns. Fiscal 2011 ended with an unreserved current fund balance of $7.1 million or a solid 13% of spending, up from $6.6 million (12%) a year prior. Declines in state aid and other revenue sources combined with rising personnel costs pressured current fund operations over the last few years. However, the township's strong management team has eased these concerns through a combination of cost cutting measures beginning in 2010 as well as tax levy increases within the state mandated cap of 2% per year. Maintenance of the current level of flexibility is a key rating driver supporting the current rating level and given management's historically prudent practices, Fitch expects no material changes to reserves.

TAX BASE STABLE

The recent recession had little to no effect on the township's primarily residential tax base and assessed values (AV) have been stable over the past five years. Property tax is the current fund's largest revenue source accounting for 63% of total revenues in fiscal 2011. Collection rates are high and are aided by the township's successful use of tax lien sales. There is no concentration in the top taxpayers; the top 10 accounting for only 4% of the total tax base. The township's expectations for minimal AV gains are appear reasonable as several commercial and residential projects are either under construction or nearing the final stages of approval.

MOSTLY POSITIVE LOCAL ECONOMIC INDICATORS

The township benefits from an advantageous location in Middlesex County 36 miles south of New York City with excellent access to major commuter routes. The location also benefits from a proximity to the New Jersey Shore serving as a recreational destination for residents. Wealth levels are above average with per capita income 102% of the state and 131% of the national levels.

County employment and labor force trends trail both state and national averages (statistics for the township are not available) although unemployment statistics are mixed. The county's unemployment rate for July 2012 increased to 9.6% from 9.2% a year prior although labor force growth did modestly outpace employment at 0.5% and 0.1%, respectively. The county's July 2012 unemployment rate is below the state's 10.1% and above the nation's 8.6%.

MANAGEABLE CARRYING COSTS

The overall debt burden for the township is below average at $797 per capita and 0.7% of market value. Total carrying costs (the sum of debt service, pension and other post-employment benefit (OPEB) contributions) are a manageable 19% of current fund expenditures, especially given the rapid rate of principal amortization with nearly 100% retired within the next 10 years. Given the rapid amortization and minimal planned use of additional debt, Fitch views the township's debt profile as a credit positive.

Outstanding debt for the Old Bridge Municipal Utility Authority (OB MUA) carries the township's unlimited tax general obligation pledge; however the bonds are ultimately secured by user fees from water and sewer operations. The user fees have been sufficient to service the debt and given the stability of the revenue source and historic performance, current fund support of the OB MUA debt is unlikely.

The township participates in two cost sharing multiple-employer defined benefit pension plans administered by the state. Funding levels for both plans are at or just below average (using a conservative 7% rate of return) the Police and Fireman's Retirement System (PFRS) at 70% and the Public Employees' Retirement System (PERS) at 61% as of June 30, 2011. The township funds OPEB on a pay-go basis with a low unfunded liability of just 0.15% of total market value.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Fitch Ratings
Primary Analyst
Sara Ketchum, +1-212-908-0744
Associate Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Bernhard Fischer, +1-212-908-9167
Director
or
Committee Chairperson
Jessalynn Moro, +1-212-908-0568
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings