Fitch Affirms Hudson County, NJ's ULTGOs at 'AA-'; Outlook Stable

Fitch Ratings has affirmed its rating on the following Hudson County, New Jersey's (the county) general obligation (GO) bonds:

--$74.8 million outstanding GO bonds at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The county has pledged its full faith and credit and its ad valorem tax, without limitation as to rate or amount, to the repayment of the bonds.

KEY RATING DRIVERS

MODEST CURRENT FUND RESERVES: The current fund reserves remain somewhat low, generally approximating 5% of spending. Modest reserve levels are offset to some extent by the county's history of stable and balanced operations achieved through annual property tax rate increases, conservative budgeting of economically sensitive revenues and expenditure controls.

ADVANTAGEOUS LOCATION: The county benefits from its proximity to New York City with many residents employed in the higher wage financial services and professional and business services sectors. Key income metrics are on par with the national average and have shown strong growth over the last decade. Unemployment typically registers above the state and national benchmark.

LOW CARRYING COSTS: Debt ratios are moderately low and carrying costs including debt service, pension and other post-employment benefits (OPEB) are affordable.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics, including the county's strong financial management practices and sufficient reserve levels.

CREDIT PROFILE

Hudson County is located along the Hudson River directly across from New York City. The county's estimated 2014 population of 669,115 is up 9.9% since the 2000 census. Incorporated cities include Jersey City, Union City, Bayonne, North Bergen, & Hoboken.

STABLE, DIVERSE LOCAL ECONOMY

The local economy benefits from the county's proximity to New York City and its excellent network of transportation via road, rail, and sea. Recent major additions within the county from financial sector firms have diversified the employment base. Top employers include United Parcel Service, UBS Financial Services, Pershing/Mellon Bank, and Goldman Sachs & Co.

The county's February 2015 unemployment rate of 6.4% remains above the national average of 5.8% but is down from a peak of 11.4% in September 2009. Employment growth over the last decade has averaged 0.8% per year. Income indicators remain below the wealthy region and state average but above the national average.

MAINTENANCE OF ADEQUATE RESERVES

Current fund balance has been relatively stable between 4.1%-6.5% of spending since fiscal 2004. Management has achieved balance through annual moderate property tax rate increases, conservative budgeting of economically sensitive revenues and expenditure controls. Audited financial statements for fiscal 2013 show a decrease in fund balance to $21.6 million, or 4.1% of expenditures, from $23.1 million in fiscal 2012. Unaudited results for fiscal 2014 indicate an increase in current fund balance to $25.5 million.

Property tax revenues comprise over 60% of the county's annual current fund revenues. New Jersey municipalities are subject to a 2% tax levy cap, but the cap excludes debt service, certain increases in pension and healthcare costs, and tax revenues from new construction. The county's full tax levy is guaranteed by its underlying municipalities, per state law. Taxable assessed values increased 36.5% in 2014, primarily due to a reassessment in Hoboken that more than tripled its tax base (the last reassessment was in 1988). Leading taxpayers are a diverse mix of commercial properties with the top 10 at 9% of total valuation.

AFFORDABLE DEBT LEVELS

The county's overall debt levels are moderately low at 2.2% of market value and $1,850 per capita. Principal amortization is above average with 68.7% retired within 10 years. Debt service was a very reasonable 4.6% of spending in fiscal 2013. The county plans to issue roughly $10 million for education projects later this year which will have only a modest impact on debt ratios.

MANAGEABLE CARRYING COSTS

The county participates in two state-run pension plans (Public Employees Retirement System [PERS] and Police and Fireman's Retirement System [PFRS]) which are funded at an estimated 69% and 67%, respectively, using Fitch's conservative 7% investment rate of return. The county fully funds its actuarially determined annual required contribution to the plans, as dictated by the state. The county's pension payments currently account for a low 3% of government expenditures.

OPEB is provided by the State Health Benefits Program, a cost-sharing, multiple-employer defined post-employment healthcare plan and annual payments are manageable at 1.9% of spending in fiscal 2013. Overall carrying costs including debt service, pension and OPEB were a low 10.8% of spending in fiscal 2013.

Additional information is available at 'www.fitchratings.com'.

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

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985247

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