What drove Essex County, N.J., to a triple-A rating
Healthy reserves and a diversified tax base lifted New Jersey’s Essex County to an Aaa rating from Moody’s Investors Service, 16 years after getting lowered to near junk territory.
Moody’s upgraded Essex one notch from Aa1 late Friday citing the large suburban county’s increasing tax revenue stream coupled with a modest debt and pension burden. The upgrade came a year after Moody's previous uprade of Essex County, to Aa2. It marked the county’s ninth upgrade since 2005. Fitch Ratings rates Essex general obligation bonds at AA-plus.
“Essex County's strong management has been a major driver in its financial improvement,” said Moody’s analyst Douglas Goldmacher in his Aug. 17 report. “The county's financial position will remain strong in the near to medium term as management continues to budget conservatively.”
Moody’s downgraded the county to Baa2 in November 2002 as it grappled with severe fiscal stress. The county, which includes Newark, was saddled with a $64 million budget deficit and no fund balance in 2003. Moody’s noted that Essex has recorded four consecutive years of tax base growth to $89.8 billion and achieved surplus for six conservative budget cycles to a current fund balance of $103.7 million.
“When I was elected in 2002, Essex County was going through its most difficult financial time,” Essex County Executive Joseph N. DiVincenzo Jr. said in a statement. “I want to thank Moody’s for giving my administration the opportunity to prove ourselves and for listening to our story of transformation in Essex.”
DiVincenzo noted that Essex’s efforts to strengthen its fund balance were challenged during the recession when it was forced to use $51 million of the reserves as revenue in the 2008 and 2009 budgets in an effort to avoid layoffs and furloughs. He said the strengthened fund balance is now forecast at $118 million for the end of 2018 fiscal year, which has helped the county avoid issuing any short-term bond issues in recent years.
“Even before I was sworn into office, my team met with Moody’s, laid out our plan for financial recovery and asked them to give us a chance to address our budget problems,” DiVincenzo said.
Essex was also assigned an Aaa rating for $61.3 million of GO bonds it plans to sell in September for various capital improvements including an expansion of Essex County West Caldwell School of Technology and infrastructure enhancements at Essex County College. Essex is also slated to issue $53.2 million of bond anticipation notes next month to finance capital improvements in the Essex County Schools of Technology District and for other infrastructure projects throughout the county.
Goldmacher noted that Essex’s debt service will decline by or around $43 million, or 38%, in 2024 which will “dramatically increase” the county’s already strong budgetary flexibility. Roughly 37% of its $996 million of total debt was issued by the Essex County Improvement Authority (ECIA) and is secured by county payments.
Essex County encompasses 22 municipalities. The county had a population of 808,285 in 2017, according to Moody’s.