Moody's Investors Service said it has placed the general obligation bond ratings for the following issuers under review for possible downgrade: city of Asbury Park (Baa1; $31 million), Kearny town (A2; $31 million), city of Newark (Baa1 unlimited tax and Baa2 limited tax, $575 million), city of Paterson (Baa2,$64 million), city of Trenton (A3; $347 million), Union City (A3; $49 million), and Weehawken township (Baa3; $4.8 million).
The action affects approximately $1.1 billion in total general obligation debt outstanding.
The review is prompted by the state of New Jersey's (A1 negative) constrained financial position and the increased risk of cuts in state aid to municipalities, particularly Transitional Aid, given the New Jersey State Superior Court's recent ruling which called for an increase of $1.6 billion in pension contributions for the June 30, 2015, state fiscal budget.
The $1.6 billion of pension payments constitute 15% of unspent appropriations for fiscal year 2015 and 4.7% of the total, $33.8 billion fiscal 2016 budget. The action also reflects the state of New Jersey's January appointment of an Emergency Manager in Atlantic City and the possible adjustment of the city's debt, which may demonstrate a limit to the state's willingness to provide emergency financial support to other municipalities should they fall into distress.
During the review, Moody's will consider each city's ability to absorb a potential loss of state support. Additionally, it will evaluate each city's plans to offset potential state aid reductions with expenditure cuts and/or other revenue increases. Negative rating pressure may result due to each city's current financial position, limited revenue raising flexibility under the state's 2% property tax cap, weak tax bases and low wealth indicators.
The review will also consider the Emergency Manager's fiscal recovery plan for Atlantic City as an indication of the state's willingness to provide emergency support to its local governments.
The following cities were included in this review based on some combination of these factors: relatively high reliance on state aid (the focus is on Transitional Aid and Consolidated Municipal Tax Relief Aid (CMPTRA)); limited ability to compensate for cuts in aid with property tax levy increases; and narrow available cash in the Current Fund as a short term cushion for an unexpected cut.
ASBURY PARK (Baa1): State aid as % of 2013 property tax revenues: 75%; State aid as % of 2013 Current Fund Net Cash: 259%; 2013 Current Fund Net Cash: 9.8%
KEARNY TOWN (A2): State aid as % of 2013 property tax revenues: 5.7%; State aid as % of 2013 Current Fund Net Cash: -69%; 2013 Current Fund Net Cash: -5%
NEWARK (Baa1 and Baa2 limited tax): State aid as % of 2013 property tax revenues: 26.7%; State aid as % of 2013 Current Fund Net Cash: 293%; 2013 Current Fund Net Cash: 2.6%
PATERSON (Baa2): State aid as % of 2013 property tax revenues: 25.2%; State aid as % of 2013 Current Fund Net Cash: 583%; 2013 Current Fund Net Cash: 2.5%
TRENTON (A3): State aid as % of 2013 property tax revenues: 55.8%; State aid as % of 2013 Current Fund Net Cash: 143%; 2013 Current Fund Net Cash: 13.8%
UNION CITY (A3): State aid as % of 2013 property tax revenues: 27.9%; State aid as % of 2013 Current Fund Net Cash: 114%; 2013 Current Fund Net Cash: 13.8%
WEEHAWKEN (Baa3): State aid as % of 2013 property tax revenues: 3%; State aid as % of 2013 Current Fund Net Cash: -22%; 2013 Current Fund Net Cash: -8.1%
