Summary: Lyndhurst Township, New Jersey; General Obligation Primary Credit Analyst: Steve C Tencer, CPA, New York (1) 212-438-2104; steve.tencer@standardandpoors.com Secondary Contact: Moreen T Skyers-Gibbs, New York (1) 212-438-1734; moreen.skyers-gibbs@standardandpoors.com Table Of Contents Rationale Outlook Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 13, 2014 1
Summary: Lyndhurst Township, New Jersey; General Obligation Credit Profile Lyndhurst Twp GO (AGM) Unenhanced Rating AA-(SPUR)/Stable Upgraded Many issues are enhanced by bond insurance. Rationale Standard & Poor's Ratings Services raised its rating on Lyndhurst Township, N.J.'s series 2013 general improvement and water utility general obligation (GO) bonds two notches to 'AA-' from 'A', based on Standard & Poor's local GO criteria released Sept. 12, 2013. The outlook is stable. A pledge of the township's full faith credit and resources, and an agreement to levy ad valorem property taxes without limit as to rate or amount, secure the bonds. The rating reflects our assessment of the township's: Very strong, primarily residential economy with strong income, coupled with its participation in and ease of access to the deep and diverse New York City metropolitan statistical area (MSA); Adequate budgetary flexibility; Strong budgetary performance, achieving consecutive operating surpluses after prior years of structural imbalance and thin reserves attributable to the failed EnCap redevelopment project; Very strong liquidity; Adequate management conditions; and Weak debt and contingent liabilities profile. Very strong economy We consider Lyndhurst's economy to be very strong, with projected per capita effective buying income at 120.6% of the U.S., and $136,338 per capita market value. The township's tax base is primarily residential, coupled with a stable commercial presence accounting for about 37% of the base. It is located in Bergen County, in close proximity to the New Jersey Sports and Exposition Authority's Meadowlands Sports Complex comprising Met Life Stadium, the Izod Center, and the Meadowlands Racetrack. As mentioned above, Lyndhurst participates in the broad and diverse New York City MSA and is within short commuting distance via highway and public transportation. The county's calendar year 2012 unemployment rate was 8.2%. As part of a plan (dating back to 2001) to redevelop about 325 acres of former landfill and industrial property in the township into a large-scale golf course, a plan endorsed by the New Jersey Meadowlands Commission (NJMC), EnCap Golf Holdings LLC (a private company) was chosen and subsequently became the largest taxpayer in Lyndhurst. The project ultimately failed, and was followed by the company's bankruptcy in 2008, resulting in three years of unpaid WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 13, 2014 2
Summary: Lyndhurst Township, New Jersey; General Obligation property taxes. This placed a significant burden on the township's finances, resulting in interfund loan and cash flow borrowings, unfunded pension costs, ongoing use of fund balance, and in turn fund balance deterioration. NJMC, which is run by the state, took over the land and argued that the EnCap properties were tax-exempt. Litigation ensued for a number of years, accompanied by claims from lienholders. Tax appeal bonds amounting to $18 million were issued to settle the lienholders' claims and other tax appeals. In June 2012, the litigation with NJMC was settled, with the township receiving $5 million of the nearly $8 million it originally claimed. At the same time, after a reassessment in 2012, NJMC (which previously accounted for 3.8% of the tax base) was no longer on the township's tax roll, resulting in a reduction of over $120 million in the base, or over $2 million in tax revenue. Instead, the township is due to receive $175,000 in annual PILOT (payment in lieu of taxes) payments for 20 years. This reduction is reflected by a sharp 24% decline in the township's assessed valuation (AV), equating to $2.6 billion. The overall tax base, however, remains at a level we consider diverse at 13% of AV, down only 1% as a result of the EnCap matter. Management indicates four properties in the New Jersey Meadowlands District are appealing their assessments. Adequate budgetary flexibility In our opinion, the township's budgetary flexibility is adequate, having increased consecutively by over $1.5 million (on average) for the past two years after nearly being depleted due to the EnCap matter. As a result, management implemented cost-cutting measures, including the reduction of 18 staff positions and implementation of eight furlough days. Audited fiscal 2012 reserves were $3.2 million, or 8.8% of expenditures. However, after adjusting for $2.6 million in unpaid NJMC receivables that is instead being deferred for seven years, fund balance drops to $530,000, or 1.5% of expenditures (the Local Finance Board granted special approval for the deferral). Based on unaudited fiscal 2013 financials, the current fund reflects a significant fund balance increase. Strong budgetary performance The township's budgetary performance is strong, in our view, with consecutive operating surpluses in calendar years 2011 and 2012, after a period of structural imbalance due to ongoing tax appeals and loss of the township's largest taxpayer, EnCap Golf Holdings LLC (now NJMC), leading to tax revenue declines compounded by limited revenue-raising flexibility. Fiscals 2011 and 2012, however, saw operating surpluses net of $884,000 and $1.4 million, or 2.6% and 3.8% of expenditures, respectively. Based on unaudited 2013 results, the current fund is expected to achieve about a $5 million operating surplus. According to management, the increase is due to strong current and delinquent tax collections, along with an unspent appropriation reserve. At this time, the township's 2014 budget is not yet complete. Very strong liquidity Supporting the township's finances is liquidity we consider very strong, with current fund available cash at 17.8% of current fund expenditures and 146.6% of debt service. We believe the township has strong access to external liquidity. Adequate management The township has adequate financial practices under our Financial Management Assessment methodology, indicating our view that the finance department maintains adequate policies in most, but not all, key areas. Although management recently adopted a reserve and debt policy, we believe it lacks defined goals. Highlights include: Reporting monthly budget-to-actual results to the township commissioners; Monthly reports regarding budget and investment holdings, with the township following the state's conservative WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 13, 2014 3
Summary: Lyndhurst Township, New Jersey; General Obligation investment policies; A formal three-year financial projection that is also shared with the commissioners; and Maintenance of a six-year capital improvement plan that is updated annually as part of the budget process. Weak debt and contingent liabilities profile In our opinion, the township's debt and contingent liabilities profile is weak, with current fund debt service at 12.1% of current fund expenditures, and net direct debt at 184.9% of current fund revenue. Debt amortization is rapid, in our view, with about 80% of total debt scheduled to retire within the next 10 years. The township contributes to state-administered pension and other postemployment benefit (OPEB) plans. It has historically made 100% of its annual required contribution (ARC) to these plans. Lyndhurst's combined ARC pension and OPEB costs for fiscal 2012 were 7.1% of total expenditures. Strong institutional framework We consider the institutional framework score for New Jersey municipalities to be strong. Outlook The stable outlook reflects our view of the township's very strong economy supported by its location within a diverse employment base, along with its access to the New York City MSA. It also reflects the township's very strong liquidity and strong budgetary performance. However, should current outstanding tax appeals on properties in the New Jersey Meadowlands District result in financial pressures and weaken the aforementioned, we could lower the rating. Conversely, if the township can continue to maintain structurally balanced operations coupled with a favorable resolution of the outstanding tax appeals, we could raise the rating within the two-year outlook period. Related Criteria And Research Related Criteria USPF Criteria: Local Government GO Ratings Methodology And Assumptions, Sept. 12, 2013 Related Research Institutional Framework Overview: New Jersey Local Governments Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 13, 2014 4
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