The shrinkage of major pharmaceutical operations in northern New Jersey is a credit negative for the area’s municipalities, Moody’s Investors Service said Friday.
Big pharmaceutical companies have announced layoffs and site closures in the last few years and have cut the number of their employees in the region by 22.5% since 2006.
On Oct. 1 Merck & Co. announced that by the end of 2015 it would close its headquarters in Aa1-rated Readington Township, N.J., and cut 16,200 workers, most of them in New Jersey. Along with this closing, Merck plans to close a large campus in Summit (Aaa).
“The towns and overlapping Readington Township School District, N.J. (Aa2) could experience sizable budgetary pressure if the sites are not sold by 2015,” Moody’s associate analyst Michelle Choi said. Merck accounts for 7.2% of the assessed property value of Summit and 8% of the assessed value of Readington.
In addition, Roche Holding AG and Novartis AG announced cuts in 2012. Nutley Township (Aa2) and Nutley Township School District (A1) could be negatively affected when Roche closes its Nutley campus by the end of this year. Novartis plans to lay off 1,650 employees by 2015, many of them in East Hanover (Aa2).
“Site closures are more credit negative for New Jersey municipalities than layoffs because property taxes are the main revenue source for the local governments,” Choi said. However, layoffs could indirectly affect property taxes through decreased property values and increased property tax delinquencies.
Other New Jersey municipalities with a strong reliance on pharmaceutical company property taxes include Kenilworth (Aa2), Hopewell (Aa1), and New Brunswick (A2).
Shrinkage of the pharmaceutical operations will probably not have a major impact on the state’s credit, Choi said. While the state lost about $1.2 billion in annual pharmaceutical wages from 2007 to 2012, this was offset by a $1.1 billion gain in scientific research wages in the period.