NEW YORK, September 18 (Fitch) Fitch Ratings takes the following rating action
on the city of Newark, Delaware (the city):
--$11.3 million general obligation (GO) refunding bonds, series 2011 affirmed at
The Rating Outlook is Stable.
The bonds are general obligations of the city, for the payment of which the city
has pledged its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
VERY LOW DEBT: Use of pay-as-you-go capital spending has limited the city's
reliance on debt. Fitch expects the city to continue to maintain a very
manageable debt burden given limited future capital needs, absence of borrowing
plans, and rapid pay-down of outstanding bonds.
ENTERPRISE FUND DEPENDENCE: The city general government operations are largely
supported by transfers from the utility funds, which have demonstrated fairly
stable financial metrics and improved but adequate liquidity.
STABLE UNDERLYING ECONOMY: Anchored by a significantly sized healthcare and
education sector, and benefiting from a highly educated labor force, Newark
continues to register a rate of unemployment lower than the state and nation.
FINANCIAL PROFILE OF UTILITIES: Given the reliance on transfers for general fund
operations, the continued strength of the utility funds is paramount to the
maintenance of the current rating.
The City of Newark is located in the northwestern part of the state of Delaware,
approximately 25 miles southwest of Wilmington, DE and 45 miles southwest of
Philadelphia, PA. The city's 2012 estimated population of 32,367 reflects a 3%
increase since 2010.
ECONOMY ANCHORED BY HEALTHCARE AND EDUCATIONAL INSTITUTIONS
Newark's economy is anchored by a significantly sized healthcare and education
sector. With more than 10,400 employees, Christiana Care Health System is the
largest private employer in Delaware and the 10th largest employer in the
Philadelphia region. The University of Delaware (UD) which enrolls over 21,000
students is the city's second largest employer with approximately 4,000
UD continues to develop the 272-acre former Chrysler plant site into its
science, technology and advanced research (STAR) campus. Fitch believes the
campus has potential for economic benefit over the intermediate term through job
recruitment and partnerships in the biosciences, energy and environment,
engineering, and information and communication technologies. Bloom Energy, a
California-based fuel cell manufacturer, has completed construction of its
manufacturing facility on the campus and is expected to add 300 new hires by
fall 2014 and 900 by 2016. Also, a $1.1 billion data center is being proposed on
the campus which, if realized is projected to bring approximately 300 new jobs.
The city's employment base has continued to grow over the past three years
(2010-2012) with growth outpacing the state and nation. The city's unemployment
rate, at 7.5% as of July 2013, still remains lower than the state and nation.
Newark is already well represented in these fields, with the presence of major
international firms in and around the city including E.I. DuPont de Nemours and
Company and Dow Electric Materials. The local workforce is exceptionally well
educated, which should serve the city well in its continued efforts to attract
high-paying science and technology jobs. Current income measures are moderately
below-average, which likely reflects the influence of a large student
SOLID FINANCIAL OPERATIONS BOLSTERED BY TRANSFERS FROM UTILITIES
City finances are significantly reliant on enterprise fund transfers. Utility
transfers to the general fund totaled $13.2 million in fiscal 2012. This general
fund revenue stream has been stable averaging $12.4 million over the past five
years representing a significant 50% of general fund revenue. Though atypical
for local governments, the general fund's transfer dependence represents a
thoughtful policy designed to keep taxes low and to spread the cost of
government among residential and commercial taxpayers and tax-exempt entities,
most notably University of Delaware, which occupies a significant portion of the
city's total land area.
Fiscal 2012 ended with a modest $67,000 (0.25% of spending) operating surplus,
after transfers, increasing the unrestricted balance to $2.7 million or a
healthy 10% of spending. The city's reserve policy targets an unrestricted
general fund balance equal to at least 8% of operating revenues.
The city's enterprise funds include water, wastewater, electric and parking. The
aggregate system has consistently generated very strong coverage ratios in
excess of 10x. Cash and investments relative to operating expenses, a principal
measure of utility fund financial flexibility, has continued to improve from a
low of just 21 days cash on hand in 2009 to a still narrow but improved 89 days
at year-end 2012 or 17% of combined enterprise fund operating revenue. Fitch
favorably notes the city's efforts to improve its overall financial flexibility,
by implementing property tax increases and utility rate increases while
maintaining competitive tax rates and utility fees.
MINIMAL DEBT PRESSURE
Overall debt levels remain extremely modest at $480 per capita and 1% of market
value. The city has a history of funding capital needs on a pay-as-you-go basis,
with transfers of $1 million to $2 million from the general fund in recent
years. More than 80% of outstanding direct debt is repaid within 10 years,
offering flexibility to fund future capital needs. The city does not plan to
issue any debt for new money purposes in the next five years.
All of the city's outstanding debt (approximately $11.3 million as of fiscal
2012) is secured by the city's unlimited tax GO pledge, but the bulk of the debt
is serviced from the water enterprise fund, which provided coverage of 1.6 times
(x) in fiscal 2011 and 1.03x in fiscal 2012. General government debt service
(net of water utility related GO debt service) totaled $30,797 in fiscal 2012 or
below 1% of general fund spending. There is no utility system debt outstanding.
Fitch also notes with respect to other long-term liabilities, the city's prudent
funding of the full actuarial required contribution (ARC) for other
post-employment benefits (OPEB), totaling $1.1 million in fiscal 2012. The city
also established a trust for OPEB with a current balance of $4.2 million. The
city's pension plan has a funded ratio of 61.5% as of the most recent actuarial
valuation date. The city is exploring several options to improve the funded
ratio. The city routinely funds the full pension ARC, which is not considered a
significant pressure on the existing budget.
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email:
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.
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