Fitch Ratings has assigned an 'A+' rating to the New Jersey Sports and Exposition Authority's (the authority) approximately $205,370,000 state contract bonds, 2008 series B (refunding bonds) and 2008 series C (federally taxable). The bonds are expected to be offered through negotiation during the week of August 25th. Additionally, Fitch affirms its 'A+' rating on the Authority's outstanding state contract bonds. The Rating Outlook is Stable.
Security for the bonds consists of state payments, equal to debt service, made pursuant to a contract between the state treasurer and the authority. The payments are subject to appropriation of the state legislature. The 2008 series B and 2008 series C state contract bonds are being issued pursuant to the 15th and 16th supplemental resolutions to the 1992 state contract bond resolution. Bond proceeds will be used to current refund the outstanding series 1992C bonds, advance refund a portion of the series 2000A bonds, and fund a swap termination payment associated with the 1992C bonds being refunded. Outstanding authority bonds have funded improvements at the Meadowlands complex, Monmouth Park racetrack, sports facilities for Rutgers University, and other higher education institutions as well as convention center facilities in Atlantic City and Wildwood.
The 'A+' rating reflects New Jersey's (the state) ability to service appropriation-backed debt. Fitch's 'AA-' GO bond rating for the state reflects high wealth levels (the second highest nationally) and a broad and diverse economy. These economic strengths have been mitigated by a high debt burden and a multitude of spending pressures, including rising debt service expenditures for school capital and other infrastructure needs, as well as escalating pension and employee benefits obligations. Fitch recognizes recent positive and decisive actions to correct a chronic structural imbalance and begin addressing the state's long-term liabilities; however, the current uncertain economic environment tempers the outlook.
Executive Order 103, issued on June 30, 2008, effectively limits spending to available recurring revenue levels and the state has applied nearly $1 billion in 2008 surplus for one-time purposes. Moreover, the state's recently passed fiscal 2009 budget reflects an absolute reduction in year-over-year spending. Despite these actions, a $1.5 billion to $2.1 billion gap still remains to be closed for fiscal 2010. Future rating direction will depend on continued progress toward fiscal balance and stabilization of the uncertain economic environment.
Strong personal income and corporate tax receipts contributed to nearly $1 billion in excess surplus for the recently completed fiscal 2008, including $684 million which will be dedicated to a newly created long-term obligation and capital expenditure fund. Monies in this fund will be applied toward capital improvements, retiring and defeasing debt, or making additional payments against pension and other post employment benefit obligations. Additional surplus funds will be diverted to this fund, per Executive Order 103, if available at the end of a fiscal year.
As noted earlier, the enacted fiscal 2009 budget is approximately $600 million below last year's originally adopted fiscal 2008 budget. Most areas of funding sustained cuts with the exception of local support to schools, which rose along with the implementation of a new school funding formula earlier this year. One-time items, which have previously been relied upon heavily, total approximately $600 million, including $500 million of programmed surplus. Fiscal 2009 revenue expectations are reasonable, though acceleration of the current downturn could threaten performance. The state expects 0.8% growth in personal income tax receipts, 1.9% growth in sales tax receipts, and a reduction of 8.6% in corporate tax receipts. Overall, revenues are expected to decline by 0.4% from fiscal 2008 levels.
State non-farm employment levels in 2007 were relatively flat, rising by just 0.1% over the 2006 figure, in contrast to a 1.1% gain for the nation. July 2008 employment figures indicate an employment loss of 0.2% over July 2007 levels, while the nation experienced job losses of 0.1% for the same period. State unemployment of 5.4% for July 2008 is just below the national level of 5.7% for the same month. State personal income figures were robust in 2006; however, indications for preliminary 2007 growth of 5.4% trail the national growth rate of 6.2%. First-quarter 2008 personal income growth also fell short of national and regional levels.
The state's debt levels are high. The debt burden as of June 30, 2008 is 7.5% of preliminary 2007 personal income, and ongoing capital demands for school construction and transportation projects are large. State residents will consider this November a constitutional amendment to expand the necessity of voter approval for future debt issuances that do not carry a dedicated repayment source, which Fitch believes may limit future growth in debt levels. An asset monetization plan announced earlier this year, which called for the leveraging of the state's toll roads to relieve the state's debt burden and to provide future transportation funding, has not moved forward. A revised plan is expected in the coming months.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this underlying rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework').
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Kenneth T. Weinstein, +1-212-908-0571
Richard
J. Raphael +1-212-908-0506
Media Relations:
Cindy Stoller,
+1-212-908-0526
