TEXT-Fitch affirms Summit, N.J. GOs at 'AAA'
Dec 4 - Fitch Ratings affirms the following city of Summit, NJ (the city) outstanding bonds at 'AAA': --$61 million unlimited tax general obligation, assessment, sewer and school bonds, various series. The Rating Outlook is Stable. SECURITY Bonds are secured by the city's full faith and credit and its ad valorem tax pledge, without limitation as to rate or amount. Bonds issued for school purposes are additionally secured by New Jersey School Bond Reserve Act. KEY RATING DRIVERS STRONG LOCAL ECONOMY: The city is advantageously located near numerous employment opportunities both within the city and within commutable distance to the greater New York City marketplace. Local employment is anchored by Overlook Medical Center part of Atlantic Health Systems and Merck & Co.'s global headquarters. STABLE TAX BASE: Taxable assessed values suffered minimal declines over the past four years supported by the high desirability of the city's residential and commercial properties. ABOVE AVERAGE ECONOMIC INDICATORS: City wealth and income levels are above state and national averages reflective of residents' access to multiple employment markets. STRONG FINANCIAL PROFILE: Financial performance and reserves remain strong at over 20% of budget. Costs related to Hurricane Sandy were moderate but are expected to result in temporary reserve draws with expected replenishment. Management has successfully maintained budgetary balance under the recently enacted 2% annual property tax cap. MODERATE DEBT: Debt levels are moderate as a percentage of taxable value and amortize at an above average rate with minimal capital needs. Annual carrying costs for debt and pensions are moderately-high at 19% of budget. CREDIT PROFILE Summit is located 16 miles west of New York City in Union County, NJ proximate to several interstate highways and with excellent transit services and a population of 21,578. MINIMAL HURRICANE SANDY DAMAGE City facilities and residents suffered minimal damage from Hurricane Sandy in October 2012. The storm caused extended electrical outages outside the downtown area and at several city facilities. Storm costs for police and public works overtime and cleanup are expected to total $500,000 (1.25% of fiscal 2012 spending). The city's sizable financial reserves will be able to subsidize related costs with expected reimbursement in 2013. City debt service payments and quarterly property tax collections both due November 1, 2012 were made and received without issue. ABOVE AVERAGE ECONOMY; STABLE TAX BASE The city's downtown is a regional retail and office center and residents benefit from proximity and easy access to numerous employment opportunities throughout the metropolitan NY region. Local employment is anchored by Overlook Medical Center with over 3,000 employees and Merck & Co. (Merck). Merck merged with Schering Plough in 2009 and announced in October 2012 that Summit will become its world headquarters adding 2,000 employees and contractors to the existing 2,500 within the city by 2014. City unemployment rates are not available but are likely lower than county levels which remain above national levels at 9.4% for September 2012 given the city's highly educated workforce. Income levels are above average, as Summit's 2010 per capita income level equaled 203% and 258% of the state and national averages, respectively. Fitch expects city economic indicators to remain above average. Taxable assessed values have been flat over the past four years with full market value sizable at around $7 billion or $333,000 per capita. Building permit activity continues to increase with 2012 expected to exceed 2011 and includes office and residential projects. Downtown commercial occupancy rates are very high at over 98%. Leading taxpayers are diverse after Merck whose four properties comprise 7.27% of the total. The city tax base suffered minimal damage from Hurricane Sandy and is expected to remain stable. BUDGETARY PRESSURES; STRONG RESERVES Fitch views financial management as a credit positive. The city has maintained budgetary balance and strong reserves through a modest use of fund balance along with selective staffing reductions and favorable contract negotiations. Historically, general fund reserves averaged $9 - 10 million or 20 - 25% of general fund budget. The city maintained a high level of municipal services, as demanded by residents, and successfully navigated financial challenges over the last four years. Property taxes represent 75% of revenues and grew slower than projected due in part to the statewide 2% growth limit on property tax revenue, state aid uncertainties and lower miscellaneous revenues. Expenditure increases were driven by salary and benefit costs. Recently negotiated police contracts should temper expenditure increases over the next two years and offset increasing pension costs. The city's high level of financial flexibility facilitated adequate management of unexpected costs associated with Irene ($800,000 in 2011) and Sandy ($500,000 in 2012). Fitch expects the city to successfully replenish Sandy-related costs in 2013, as it did with Irene in 2012, and maintain budgetary balance and strong reserves thereafter. MODERATE DEBT PROFILE AND CARRYING COSTS Debt levels are moderate on an overall basis, with debt per capita at $5,122 and 1.5% of market value. Approximately 50% of the city's debt profile is for school related debt and another 40% for municipal related debt. City carrying charges for debt service (including school debt), pensions and other post-employment benefits (OPEB) is moderately high at 19% of 2011 general fund budget offset in part by an above average debt amortization rate of 77% and minimal capital needs and future issuances. City pension costs are based on participation in the state retirement program which has a low 61% Fitch-adjusted funding rate at June 30, 2011. City OPEB liabilities are limited to very small annual stipends. The city's required pension contributions increased 23% to $3.3 million in 2011 after state plan amendments and updated actuarial results and are expected to remain at this level for the next two years. 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, University Financial Associates and IHS Global Insight. 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 U.S. Local Government Tax-Supported Rating Criteria
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