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RPT-Fitch affirms Newark, DE's GOs at 'AA+'; outlook stable
September 18, 2013 / 7:01 PM / 4 years ago

RPT-Fitch affirms Newark, DE's GOs at 'AA+'; outlook stable

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
'AA+'.

The Rating Outlook is Stable.

SECURITY 

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. 

RATING SENSITIVITIES

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.

CREDIT PROFILE

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 
employees.  

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 
population. 

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. 

Contact:

Primary Analyst

Evette Caze

Director

+1-212-908-0376

Fitch Ratings, Inc.

One State Street Plaza

New York, NY 10004

Secondary Analyst

Larry Levitz

Director

+1-212-908-9174

Committee Chairperson

Michael Rinaldi

Senior Director

+1-212-908-0833

Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: 
elizabeth.fogerty@fitchratings.com.

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.

Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 
here. IN ADDITION, RATING 
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S 
PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE 
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS 
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED 
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH 
WEBSITE.

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