Essex County Executive Joseph N. DiVincenzo, Jr. announced that Fitch Ratings has increased Essex County’s long-term bond rating to AA-plus, which is a two-step improvement over the former rating of AA Stable that was assigned in 2013. This is the second positive bond ratings increase that Essex County received this year; in March, Moody’s Investors Services, another financial rating agency, improved Essex’s rating to a Aa2 with a Positive Financial Outlook.
“This two-step ratings upgrade is incredible news for Essex County and validates the conservative budgeting and innovative revenue creation approach we have been following for the past 14 years. My administration has revitalized our parks system, modernized our infrastructure and continued to provide supportive services to our residents, but none of this would be possible if we did not stabilize and strengthen our financial standing,” DiVincenzo said. “The ratings we get from agencies such as Fitch are our financial report cards and demonstrate the confidence that Wall Street has in us. It is also an indication to our residents about the positive direction in which we continue to move. This is great news, but obtaining a triple A rating continues to be my ultimate goal,” he added.
The two-step upgrade reflects “the county’s exceptionally strong gap-closing capacity, stable but slow-growing revenue base, and solid operating performance. The county’s strong financial profile reflects a wealthy property tax base, manageable expenditure growth demands and a demonstrated ability to reduce expenditures during economic downturns,” according to the Fitch release.
In its report, Fitch states it has confidence in Essex County to continue strengthening its financial standing. “During the most recent downturn, the county demonstrated its ability to reduce spending through cost controls and staff reductions, and Fitch expects management would take similar actions to maintain its strong financial resilience in future downturns,” the report states. While the county funds its budget mostly through property taxes, Fitch credited the county for developing recurring revenue streams, which includes accepting Federal prisoners and immigration detainees at its correctional facility, accepting juvenile detainees from Passaic County at its Juvenile Detention Center and generating revenue from its parks and recreation facilities, which includes Turtle Back Zoo. “The county has entered into shared services agreements with other governmental agencies helping to generate new recurring revenues and also benefits from park and recreation facilities which generate admission and user fees helping offset increases in operating costs,” states the Fitch report.
Essex County also maintains a fund balance, which amounts to about $77 million. This fund has helped improve the County’s cash flow and has enabled Essex to discontinue the use of tax anticipation notes since 2014. This practice has saved Essex from paying millions in interest payments and makes its bonds more attractive to private investors.
The rating upgrade was assigned to $107 million of general improvement bonds for Essex County ($24.5 million), the Essex County Vocational Technical School District ($80 million) and Essex County College ($2.5 million). The bonds are scheduled to be sold on or about September 1st and are being used for various capital improvements.
When DiVincenzo took office, Essex County had a $64 million budget deficit and nothing in its fund balance. After his first four years in office, DiVincenzo built the fund balance to $35 million in 2007. When the recession hit, the money from the fund balance enabled DiVincenzo to avoid layoffs and reductions in services and programs without substantially raising taxes. Since then, the fund balance has been rebuilt to $77 million entering 2016.
Another fiscal initiative that has helped restore the confidence of Wall Street in Essex County is a comprehensive debt restructuring that occurred in 2007. Essex took advantage of low interest rates to refinance its existing debt without extending the deadline to pay off the debt. In addition, it set a policy to not exceed a total of $20 million in annual capital spending for Essex County.
Before DiVincenzo took office, Moody’s had downgraded Essex County’s bond rating to Baa2 with a Stable Financial Outlook in November 2002 and threatened to downgrade the bond rating again. By 2005, the County’s bond rating had climbed to an A rating with a Positive Financial Outlook, which was its highest rating since 1994.