Camden, New Jersey, touts rating outlook boost
Camden, New Jersey, leaders are highlighting a recent rating action that moves the long-struggling city in an upward direction.
S&P Global Ratings revised its outlook to positive from stable on Camden’s BBB-plus underlying general obligation bond rating on Oct. 10, citing the city’s proactive steps to spur economic activity and establish stable budget operations.
“The outlook revision reflects our view of various steps Camden City has taken to generate economic momentum while maintaining stable financial operations," wrote S&P Global Ratings credit analyst Timothy Barrett. “They have demonstrated some strong budgeting practices.”
Camden reached its economic peak in the late 1950s as a manufacturing hub before experiencing declines in the 1960s from new highway projects that displaced neighborhoods followed by race riots later in the decade.
The South Jersey city across the Delaware River from Philadelphia has struggled for decades.
The city began an urban renewal initiative in 2008 involving a demolition program that tore down 600 dangerous buildings. This was followed up by passage of the New Jersey Economic Opportunity Act of 2013 that led to tax credits for business investments in Camden, including Subaru's North American headquarters and a new practice facility for the NBA's Philadelphia 76ers.
Mayor Francisco "Frank" Moran said that since 2013 nearly $3 billion in investments have been made throughout Camden with expansion and growth of some of the region’s largest corporations. He also said the city is benefiting from improvements in the Camden School District, from crime being brought to a 50-year low, and record job growth. The city’s unemployment rate stands at 7% marking the lowest it has been on an average annual basis in 50 years.
“Camden’s resurgence is undeniable and investors remain confident in our city,” said Moran in a statement. “Despite downturns in many other urban communities, Camden has sustained its growth.”
Many of the large-scale developments initiated under the Economic Opportunity Act have 10-year payments-in-lieu of taxes agreements and Camden will start to see increased revenue as the PILOTs expire. Camden is in the midst of a waterfront development project anchored by American Water's 18-story headquarters that opened there in December 2018. The city is also developing new apartments and 1.7 million square feet of retail space for the waterfront, which Barrett said should generate significant future local revenue.
“Due to corporate commitments, sustained development and strong leadership, Camden continues to trend in a positive direction,” Moran said. “We look forward to working with the State, County, corporate partners and our anchor institutions like the Eds & Meds (education and medical), to achieve upgrades to our municipal bond rating.”
The outlook tweak comes five years after S&P assigned the city its BBB-plus investment-grade rating following decades of operating with junk level ratings from Moody’s Investors Service. Moody’s stopped rating Camden in February 2012.
Barrett noted that while 2018 ended with a decline in reserves, Camden has generally maintained balanced operations over the past five fiscal years. New Jersey’s state aid support of Camden’s financial operations has also provided fiscal stability to the city, according to Barrett. The city’s current estimated population of 76,470 is down 25% from 102,551 in 1970, but has stabilized in the past decade.
State oversight has played an integral role in Camden’s turnaround starting with the Municipal Rehabilitation & Economic Recovery Act of 2002 after Milton Milan became the city’s second mayor in three years to be indicted on corruption charges in 2000. The state’s intervention powers have been modified in subsequent renewals of the legislation with New Jersey now assisting with Camden’s budgeting and planning process.
“Camden City remains highly dependent on the state’s assistance for operational and economic planning, as well as financial support, with two-thirds of its current fund revenues derived from New Jersey,” Barrett wrote. “Although there are a number of benefits to this relationship, we believe the city’s reliance on state oversight and funding leave Camden City somewhat vulnerable to the state’s fiscal pressures, which we believe could intensify in future years.”
In addition to Camden’s GO bonds, S&P also rates the city’s debt issued under New Jersey’s Qualified Bond Act Program. Camden bonds guaranteed under the intercept program are one notch lower than the A-minus mark S&P rates New Jersey giving them the sate rating as city GOs.
Camden’s new positive outlook means a one-in-three chance that S&P could raise the rating during a two-year review period. Barrett said the outlook reflects Camden’s ongoing economic momentum and “relatively stable” financial results even though recent strides have yet to translate into higher wealth indicators. The city has around $18 million of GO debt outstanding, according to its latest financial statements for June 30, 2018.
New capital investments and an improved safety record are expected to support continued financial stability and potentially reduce Camden’s reliance on state aid, according to Barrett. The city could be positioned for an upgrade if it continues to experience economic growth while also maintaining at least stable financial performance and current fund reserves. The outlook could get revised back to stable in the event of weakened budgetary performance or if the state reduces aid which leads to Camden having to use reserves to bridge the gap between revenue and expenditures.
“For decades there was little to no investor interest in Camden, but that tide is finally turning,” Camden County Freeholder Director Louis Cappelli Jr. said in a statement. “This will undoubtedly be just one of many more improvements to the City’s bond rating and to the strength of investor confidence in Camden.”
David Thompson, CEO of Camden’s municipal advisor, Phoenix Advisors LLC, said the city’s economic development momentum has strengthened credit conditions and positioned it for an upgrade to the A level in the near future. He said fiscal leadership spearheaded by former Mayor Dana Redd and Moran was crucial to the upswing with the state support also playing an essential role.
“The Camden renaissance would not have been possible without the New Jersey Economic Opportunity Act passed in 2013,” Thompson said. “The State’s assistance, through the EDA, and budget aid is, of course, vital to continued improvement to the City’s credit profile.”