The great news is that Standard and Poor’s Ratings Services assigned its ‘AAA’ long-term rating, and stable outlook, to the Township of Montville, NJ’s series 2010 general obligation (GO) refunding bonds and affirmed its ‘AAA’ long-term rating and underlying rating (SPUR), with a stable outlook, on the Township’s existing GO debt.
Why?
The rating reflects the Township’s:
- Mature, primarily built-out and residential community with access to the deep and diverse labor markets of New York City and northern New Jersey
- Strong property tax base supported by high wealth and income levels
- Solid financial performance with good reserves
- Low debt burden and aggressive amortization schedule
The Yellow Flag -
- Standard & Poor’s considers Montville’s management practices “standard” under its Financial Management Assessment (FMA) methodology, indicating the finance department maintains adequate policies in some, but not all, key areas.
- Though the audit has not been complete,fiscal 2009 unaudited results indicate an unreserved fund balance reduction of $1.08 million, less than the $2.14 million appropriated in the budget. Management attributes fund balance use to tax appeals that resulted in refunds of approximately $900,000. This draw down brought the unreserved fund balance to $1.55 million, which we still believe to be a good 6% of expenditures. Property taxes generated nearly 70% of revenues in 2009, and the Township collects in excess of 98% of the levy annually.
- The stable outlook reflects the Township’s stated intention that after drawing down in fiscal 2009 to fund one-time tax refunds, it plans to restore the unreserved fund balance to historical levels, which has averaged 10% over the past four audited fiscal years. The local economy’s affluence, the Township’s low debt burden, and the Township’s experienced management further support the stable outlook.
Montville is one of only 14 municipalities in NJ that has maintained a AAA bond rating. This is terrific news because a AAA rating allows us to fund future capital expenditures via bonds more cheaply.
Kudos to Fran Vanderhoof, Frank Bastone and the LTFPC for their efforts on this.
The yellow flag of caution:
One of the metrics used by the S&P for assigning a AAA rating to Montville's debt is the level of our "reserve account" funds. This money would be used to help service the AAA rated debt if there is another gap in revenue (more tax appeals etc.) in the future. The S&P is looking for us to replenish this reserve account so that we can have a 10% buffer, not the current 6%. This would mean either "topping off" the account from your tax dollars, or a major cut in expenses, to get back to historical levels. However, if we DO experience another drop in tax revenue due to tax appeals in 2010 or from a cut in State aid, it would become difficult to maintain the 10% funding, and this would perhaps put our AAA rating in jeopardy.
Great news regarding our AAA bond rating, but we must remain vigilant, and become more fiscally conservative going forward if we hope to maintain this rating and the "Stable" Outlook.
