Fitch Rates $67MM Ocean County, NJ GOs 'AAA'; Outlook to Stable from Negative

Fitch Ratings has assigned an 'AAA' rating to the following Ocean County, NJ (the county) obligations:

--$30,850,000 general improvement bonds, series 2012;

--$32,645,000 general obligation (GO) refunding bonds, series 2012;

--$4,250,000 college capital improvement bonds, series 2012.

The bonds are expected to sell competitively the week of June 18. Bond proceeds will fund various county and county college capital improvements and refund various maturities of outstanding county bonds (series 2002AB, 2005, 2006). The county plans to realize a savings of 8.6% of the refunded par from the series 2012 refunding bonds on a level basis with no extension of maturities.

In addition, Fitch affirms the following rating:

--$387.88 million outstanding GO bonds at 'AAA'.

The Rating Outlook is revised to Stable from Negative.

SECURITY

The bonds are general obligations of the county and are secured by the county's full faith and credit and unlimited taxing power.

KEY RATING DRIVERS

BUDGET STABILIZATION: The Outlook revision to Stable from Negative reflects the county's return to surplus operations in 2011 following four years of fund balance draws, and adoption of a structurally balanced budget for fiscal 2012.

DIMINISHED, MARGINALLY ADEQUATE RESERVES: Prior year deficits, largely driven by pay-as-you-go capital, result in fund balance levels considered marginally adequate at the current rating.

SOUND MANAGEMENT: Operations are guided by a veteran and stable management team with a history of conservative budgeting practices and prudent capital planning.

WELL-LOCATED, SEASONAL ECONOMY: The economy benefits from its location on the eastern seaboard near two major east coast employment and population centers. With consistent growth the county continues to slowly diversify away from a seasonal economy which Fitch believes will provide more stability over the long-term.

MANAGEABLE DEBT AND LONG-TERM LIABILITIES: Debt levels are manageable and should remain affordable despite the needs of this growing community. Pensions and OPEB costs are manageable.

CREDIT PROFILE

MANAGEMENT RESTORES STRUCTURAL BALANCE

The county's cost containment measures and willingness to continue to raise its tax levy resulted in an operating surplus after transfers in 2011 (unaudited) following four years of deficits.

Unaudited results for 2011 depict a very modest $471,000 (or 0.1% of spending) addition to fund balance. The unreserved fund balance totals $34.4 million or 9.4% of spending. The county's policy goal is to maintain available fund balance between 10% and 17% of current fund spending. Fitch believes the county will rebuild to and maintain reserves at the policy minimum going forward.

Reserve levels are diminished from fiscal 2006, at which point in time the unreserved fund balance stood at nearly $55 million or 16% of spending. Fitch notes the decline in reserves from this period was largely attributed to contribution to capital funded out of the operating budget. From fiscal 2007-2011, pay-as-you-go capital spending averaged $15.4 million per year.

Actions designed to correct the trend of fund balance use centered on a hiring freeze, which has reduced the county's headcount by approximately 150 personnel or 7.6% of staffing through attrition since 2010, and cuts to programs previously funded by the state following reductions in supporting state aid payments.

The county has also augmented its revenue base, by increasing its tax levy an average of 2.5% in each of the last three years. The increased levy has helped offset the 8.9% cumulative decline in assessed valuation during the period. The county is highly dependent on property tax receipts, at approximately 85% of current fund revenues. Property tax collections are fully guaranteed by underlying municipalities, contributing to very strong revenue predictability.

Budgeted revenues for 2012 reflect a 5% decline compared to 2011 receipts despite a 2.3% tax levy increase, largely due to diminished state funding for county programs. Spending is held relatively flat compared to actuals paid in 2011 but down 3.8% compared to budgeted 2011 spending. Spending cuts were primarily in the areas of headcount with another 72 positions eliminated, and the further elimination of certain county programs due to declines in supporting state and federal aid. Importantly, the county continues to lower its expectations for non-tax revenues like county clerk fees and interest income.

PROMINENT EAST COAST TOURISM DESTINATION

Ocean County encompasses 634 square miles of eastern New Jersey, including 45 miles of oceanfront. Residents benefit from access to two major employment centers with their location approximately equidistant between New York and Philadelphia.

The county's location and abundant waterfront drive a seasonal tourism industry, which anchors the county's economy. County unemployment was 10.5% in March 2012, above state (9.3%) and national (8.4%) averages and slightly down from the year prior (10.7%). Unemployment levels ordinarily moderate to state and national averages during the May to September tourism months.

Major employers include Saint Barnabas Health Care Systems (4,684), Six Flags Theme Park (4,450), and the Naval Air Warfare Center Aircraft Division at Lakehurst (2,834). Neither the county nor Fitch are aware of reductions in personnel at the base due to Department of Defense budget cuts.

The county's population continues to grow, with 12.8% population growth in fulltime residents between 2000 and 2010, the second strongest growth rate in New Jersey. However, the county's growing retiree population is 40% higher than state and national averages. The county's wealth metrics are mixed, as evidenced by a county median family income at 115% of the national average but 86% of the state's high average. However, additional wealth flows into the county during the summer months from tourists and affluent second homeowners in the coastal communities.

MODERATE DEBT AND LONG-TERM LIABILITIES

Overall debt levels are moderate on a per capita basis ($2,632) and low as a percentage of taxable value (1.5%), reflecting the affluent tax base and seasonality of the county's population. Fiscal 2011 debt service was $51.4 million or a somewhat elevated 13.8% of current fund spending. The county aggressively repays its outstanding debt (74% within 10 years) which contributes to the aforementioned debt servicing burden.

Capital improvements planned through 2017 total $298 million, which the county anticipates continuing to finance a portion of on a pay-as-you-go basis, a notable credit positive. Fitch believes that that debt levels should remain moderate - the county contemplates $25 million to $30 million of borrowing annually which will offset annually retired principal.

The county participates in state-run cost sharing multiple employer plans for pension and other-post employment benefits. Despite pension reform in 2011, the largest state pension system remains poorly funded at 54.5% (using Fitch's more conservative 7% rate-of-return assumption). Recent increases in contribution rates are manageable, increasing the county's payment to 6.5% from 5.5% of current fund spending.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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