NEW YORK - Moody's Investors Service said it has downgraded the town of Westfield, N.J.'s rating to Aa2 from Aa1 affecting $8.85 million in outstanding rated general obligation debt, secured by the town's general obligation, unlimited tax pledge.
The downgrade reflects the town's materially changed financial position, characterized by a narrow current fund balance, which declined to $2.12 million or a slim 5.56% of current fund revenues in fiscal 2009 (ended December 31) from $2.85 million or 8.0% of current fund revenues in fiscal 2008.
Moody's believes the town's financial position and liquidity will remain pressured, following five consecutive operating deficits, as continued revenue weaknesses and ongoing expenditure demands challenge the town's ability to regain structurally balanced operations.
Past declines in current fund balance, particularly in fiscal 2008 and 2009, of $1.05 million and $727,000, respectively, were tied to the implementation of the state imposed four percent levy cap along with construction and interest on investment revenues coming in under budget.
In fiscal 2010, the town appropriated $1.84 million or 86.7% of current fund balance as the town adjusts to the lower levy limit.
Additionally, the budget is balanced with a $1 million reduction in salaries and wages and zero percent salary increases in an effort to offset a $1 million reduction in state aid. Management does not have a formal current fund balance policy and reports that fiscal 2010 operations are performing better than budget with the expectation of an addition to current fund balance at year-end, given current trends.
The Aa2 rating additionally reflects the expectation that growth of the town's sizable $7.66 billion residential tax base will remain minimal over the near term given recessionary economic conditions and existing tax appeal activity.
Located in Union County (rated Aaa/stable outlook) the town is characterized by wealth and income indices in excess of the median for similarly rated New Jersey municipalities.
The rating also reflects the town's modest debt burden (0.2% direct; 1.4% overall), which is expected to remain manageable given the absence of future debt plans, the town's above-average amortization of principal (86.8% repaid within 10 years), and the town's recently established debt service resolution on June 16, 2009.
The resolution states that the town can only appropriate capital improvements every two years and the size of the appropriations will be guided by the amount of principal indebtedness scheduled to mature during the same two year period. All of the town's debt is fixed rate and the town is not party to any derivative agreements.
