Guest Guest Posted December 21, 2010 Report Share Posted December 21, 2010 This month Moody's (one of the big 3 investor credit agencies) downgraded Harrison's general obligation debt rating to Baa1 (the same as Ireland for those watching the news and seeing the European debt crisis). In addition, the town's negative outlook has been affirmed. This is truly an indication of the town's poor management. The town operates beyond its means and the people in power are unable or unwilling to solve the town's long term problems. Solutions are available, but they are difficult politically and for those with vested interests in government jobs. Namely, the town should merge services with East Newark and Kearny, hire a professional borough administrator and switch the town's form of government to allow an administrator position, switch the paid fire department to all volunteer, push to adjust union contracts to reduce pension and health care costs, eliminate as many full time positions as possible, switch to an elected school board, and prevent individuals having both elected and paid positions in the town. (The last two items bring greater accountability to the system and have less to do with cutting costs.) This town should be operating in crisis mode and doing everything possible to slash the long term budget obligation of the town. Undoubtedly town officials will blame the negative outlook on either 1) the poor economic situation nationally or 2) the State's reduction in municipal aid. This defense is narrow minded and excusable. First, town officials are ultimately responsible for the long term fiscal mess the town is in and should lead, not try to assign blame. Second, the State's fiscal condition is also poor and the town will have to carry more of its own burden going forward. However a one year reduction in municipal aid does not explain the longer term outlook expressed by Moody's, nor does it explain over $30 million in outstanding debt. Third, everyone must recognize that the town has been living beyond its means and must make long term, painful adjustments for the future. I realize that most people in Harrison are uninvolved, probably transient to the town, may not speak English, and have no idea what this rating is - and that uninvolved, uncaring behavior is exactly why people won't be up in arms over this rating (although they should be). This is a huge deal - a private company that receives a negative outlook has a massive stock sell off upon announcement. This is exactly the type of thing that lowers property value. This is the type of report people should be taking to the council meeting and demand to find out what the town's long term plan is to cut costs, raise revenues, and fix this problem. Settling for "redevelopment will raise revenues" is not a good enough answer (of note: I do support redevelopment in general). But the revenue projections are not conservative, they haven't proven to be true yet, and are unlikely to be as positive as the administration indicates over the next few years. These rosy projections need to be accompanied by major cost cutting and a coherent long term plan. See below for the report from Moody's: NEW YORK, Dec 9, 2010 -- Moody's Investors Service has downgraded to Baa1 from A1 the Town of Harrison's (NJ) long-term general obligation rating on approximately $30.7 million in rated outstanding debt secured by the town's general obligation, unlimited tax pledge. Concurrently, the negative outlook on the town has been affirmed. RATINGS RATIONALE The downgrade to a Baa1 rating reflects Harrison's use of short-term financing to make a debt service payment to the Hudson County Improvement Authority (HCIA) in fiscal year 2010. The bonds are guaranteed by Hudson County (G. O. rated Aa3/stable outlook) and were originally issued in 2006 with the expectation that they would first be repaid with payments in lieu of taxes (PILOT) from ongoing redevelopment, which has been delayed. The town is borrowing funds through a one-month, privately placed note in order to make the $3.1 million debt service payment and is expected to be repaid with proceeds from a bond anticipation note to be issued through HCIA's pooled note program. The downgrade also incorporates the town's narrow liquidity, below-average socioeconomic profile and elevated debt burden. Affirmation of the negative outlook reflects Moody's expectation that Harrison will remain challenged to meet near-term debt service obligation related to this HCIA-issued debt. Management may seek additional borrowing in 2011 as was done in 2010, but this will require approval from the state Local Finance Board. NARROWED FINANCIAL POSITION; CHALLENGES MAKING COUNTY-GUARANTEED DEBT SERVICE PAYMENTS Moody's believes Harrison will remain challenged to meet debt service payments on county-guaranteed debt issued through the HCIA without additional borrowing. In 2006, the Hudson County Improvement Authority, a conduit issuer with no independent taxing authority, issued $39.4 million in bonds for the Harrison stadium land acquisition project, property which was to be developed as the future home of the New York Red Bulls of Major League Soccer. While lease payments from the Town of Harrison to the HCIA were expected to be the source of bond repayment, the bonds are ultimately backed by an unconditional general obligation guarantee of Hudson County (G.O rated Aa3/stable). Town management initially projected that ongoing redevelopment efforts and annually increasing PILOT payments would provide the source of payment for debt service to begin on December 15, 2010. However, the economic downturn has caused these PILOT payments to be lower than anticipated. Harrison initially projected PILOT payments to the town would be $2.3 million in 2008 with the expectation that they would ramp up to levels approximating $11.5 million in 2011. Actual PILOTs collected over the last three years have been approximately $900,000 in 2008, $980,000 in 2009, and $1.1 million in 2010 (unaudited). Harrison indicates that it will privately issue a one-month note in order to meet the first $3.1 million debt service payment due December 15th. Subsequently, the HCIA will issue bond anticipation notes in January 2011 backed by the general obligation pledge of Hudson County, and a portion of these proceeds will be used to repay the holder of the Harrison-issued note. (The Town of Harrison will be expected to pay back that portion of the notes to the HCIA.) This arrangement essentially allows the Town of Harrison to pay its debt service by issuing additional county-backed debt, an arrangement Moody's views as credit negative. In fiscal 2009, Harrison appropriated $1.75 million of Fund Balance and unaudited results indicate that this amount was fully replenished and the town added an additional $2.1 million to Fund Balance with $2.1 million from unexpended balance of appropriation reserves, $622,000 from nonbudget revenues and $597,000 from miscellaneous revenues in excess of budget. Harrison also deferred the state allowable portion of its pension contribution in fiscal 2009, which provided approximately $1.2 million in budget relief, which Moody's views as a one-shot revenue. The fiscal 2009 results bring the Current Fund balance to $3.9 million, or 10.4 percent of fiscal 2009 Current Fund revenues. Notably, Harrison did not issue tax anticipation notes (TANs) in 2009 after issuing $6 million in TANs in both fiscals 2007 and 2008. However, it did resume the practice in fiscal 2010 by issuing $4 million in TANs in April that mature in January 2011. Harrison appropriated $3.9 million of Fund Balance in fiscal 2010, continuing its tradition of anticipating all available Fund Balance as part of its subsequent year budget. Management indicates that approximately $4.7 million in state aid was cut compared to what it received in 2009 ($15 million in 2009 compared to $10.3 million in 2010), further reducing the town's financial flexibility and preventing it from making debt service payments with available revenues. Harrison eliminated approximately 53 positions in fiscal 2010, the results of which should yield approximately $3.5 million in savings in fiscal 2011. Management believes that it will end the fiscal year with a drawdown on Fund Balance, although the extent of the drawdown is not yet known. MODEST TAX BASE WITH BELOW-AVERAGE WEALTH LEVELS; DEVELOPMENT EFFORTS REMAIN SLOWED Moody's believes redevelopment of this northern New Jersey urban center, with wealth indicators well-below state medians, is critical to the town's financial health and future rating decisions. Approximately one-third of the town has been designated as a redevelopment area which is expected to leverage the town's location in western Hudson County, just north of Newark (G.O. rated A3/negative outlook), with proximity to New York City (G.O. rated Aa2/stable outlook). Equalized value per capita grew at a healthy five-year annual average rate of 12.6% through 2008, indicative of strong market value appreciation, before declining 14.7% in fiscals 2009 and 2010. Management initially projected PILOTs to the town at $2.3 million in 2008 with the expectation that they would increase to levels approximating $11.5 million in 2011. However, given the economic downturn, development has slowed and, as indicated above, PILOT payments have been significantly less than originally projected. Additionally, the town had been looking to the stadium for the Red Bulls professional soccer team, which was projected to open in the summer of 2008 but was delayed to 2010, to spur development and PILOT revenue. Income and wealth level levels in Harrison are well-below the state medians, with per capita and median family income at 68.5% and 74.2% of the state levels, respectively, and equalized value per capita of $77,882. DEBT BURDEN EXPECTED TO REMAIN SIGNIFICANTLY ABOVE-AVERAGE Moody's believes Harrison's overall debt burden will remain high (8.6% of equalized value), despite no significant near-term borrowing plans, given below-average amortization of principal (48% in 10 years), and a high level of direct debt (7.4% of equalized value). However, should the development discussed above materialize in the near term, it would have a positive impact on the debt profile. The direct debt burden includes school debt, given that Harrison has a Type 1 school district, as well as the $39.4 million of debt issued through the Hudson County Improvement Authority, for which a portion of the town's PILOT revenues are earmarked and the county has given its guarantee. REGULATORY DISCLOSURES Information sources used to prepare the credit rating are the following: parties involved in the ratings, and public information. Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating. Outlook Assignment of the negative outlook contemplates the town's likely difficulty in meeting debt service obligations over the near-term without additional borrowing in an environment of limited revenue growth. The negative outlook also reflects Harrison's cashflow borrowing, and Moody's expectation that redevelopment efforts will remain challenged over the near-term. Future rating decisions will be determined in large part by Harrison's ability to meet its future debt service payments with recurring revenues and not with additional borrowing. WHAT COULD MOVE THE RATING UP (REMOVAL OF THE NEGATIVE OUTLOOK): *An increase in PILOT payments by fiscal 2011 sufficient to pay debt service *Growth in the tax base from renewed development efforts *The cessation of cashflow borrowing *Adoption of conservatively structured budgets WHAT COULD MOVE THE RATING DOWN: *Any inability to execute financing plan to meet debt service payments on the stadium land acquisition bonds *Use of PILOT payment for town operations rather than debt service, as was originally intended *Continued reliance on short-term borrowing to pay debt service *Future debt issuances that materially increase the town's debt burden *Increased cashflow borrowing in relation to the budget *Further deterioration of the town's tax base KEY STATISTICS: 2008 Population (Est.): 15,201 (5.4% increase since 2000) 1999 Per Capita Income (as % of NJ and US): $18,490 (68.5% and 85.7%) 1999 Median Family Income (as % of NJ and US): $48,489 (74.2% and 96.9%) 2010 Equalized valuation: $1.184 billion 2010 Equalized value per capita: $77,882 Direct debt burden: 7.4% Overall debt burden: 8.6% Payout of principal: 48% over 10 years 2008 Current Fund balance: $1.8 million (4.9% of Current Fund revenues) 2009 Current Fund balance (unaudited): $3.9 million (10.4% of Current Fund revenues) Rated debt outstanding: $30.7 million Quote Link to comment Share on other sites More sharing options...
Guest Guest Posted December 22, 2010 Report Share Posted December 22, 2010 This month Moody's (one of the big 3 investor credit agencies) downgraded Harrison's general obligation debt rating to Baa1 (the same as Ireland for those watching the news and seeing the European debt crisis). In addition, the town's negative outlook has been affirmed. This is truly an indication of the town's poor management. The town operates beyond its means and the people in power are unable or unwilling to solve the town's long term problems. Solutions are available, but they are difficult politically and for those with vested interests in government jobs. Namely, the town should merge services with East Newark and Kearny, hire a professional borough administrator and switch the town's form of government to allow an administrator position, switch the paid fire department to all volunteer, push to adjust union contracts to reduce pension and health care costs, eliminate as many full time positions as possible, switch to an elected school board, and prevent individuals having both elected and paid positions in the town. (The last two items bring greater accountability to the system and have less to do with cutting costs.) This town should be operating in crisis mode and doing everything possible to slash the long term budget obligation of the town. Undoubtedly town officials will blame the negative outlook on either 1) the poor economic situation nationally or 2) the State's reduction in municipal aid. This defense is narrow minded and excusable. First, town officials are ultimately responsible for the long term fiscal mess the town is in and should lead, not try to assign blame. Second, the State's fiscal condition is also poor and the town will have to carry more of its own burden going forward. However a one year reduction in municipal aid does not explain the longer term outlook expressed by Moody's, nor does it explain over $30 million in outstanding debt. Third, everyone must recognize that the town has been living beyond its means and must make long term, painful adjustments for the future. I realize that most people in Harrison are uninvolved, probably transient to the town, may not speak English, and have no idea what this rating is - and that uninvolved, uncaring behavior is exactly why people won't be up in arms over this rating (although they should be). This is a huge deal - a private company that receives a negative outlook has a massive stock sell off upon announcement. This is exactly the type of thing that lowers property value. This is the type of report people should be taking to the council meeting and demand to find out what the town's long term plan is to cut costs, raise revenues, and fix this problem. Settling for "redevelopment will raise revenues" is not a good enough answer (of note: I do support redevelopment in general). But the revenue projections are not conservative, they haven't proven to be true yet, and are unlikely to be as positive as the administration indicates over the next few years. These rosy projections need to be accompanied by major cost cutting and a coherent long term plan. See below for the report from Moody's: NEW YORK, Dec 9, 2010 -- Moody's Investors Service has downgraded to Baa1 from A1 the Town of Harrison's (NJ) long-term general obligation rating on approximately $30.7 million in rated outstanding debt secured by the town's general obligation, unlimited tax pledge. Concurrently, the negative outlook on the town has been affirmed. RATINGS RATIONALE The downgrade to a Baa1 rating reflects Harrison's use of short-term financing to make a debt service payment to the Hudson County Improvement Authority (HCIA) in fiscal year 2010. The bonds are guaranteed by Hudson County (G. O. rated Aa3/stable outlook) and were originally issued in 2006 with the expectation that they would first be repaid with payments in lieu of taxes (PILOT) from ongoing redevelopment, which has been delayed. The town is borrowing funds through a one-month, privately placed note in order to make the $3.1 million debt service payment and is expected to be repaid with proceeds from a bond anticipation note to be issued through HCIA's pooled note program. The downgrade also incorporates the town's narrow liquidity, below-average socioeconomic profile and elevated debt burden. Affirmation of the negative outlook reflects Moody's expectation that Harrison will remain challenged to meet near-term debt service obligation related to this HCIA-issued debt. Management may seek additional borrowing in 2011 as was done in 2010, but this will require approval from the state Local Finance Board. NARROWED FINANCIAL POSITION; CHALLENGES MAKING COUNTY-GUARANTEED DEBT SERVICE PAYMENTS Moody's believes Harrison will remain challenged to meet debt service payments on county-guaranteed debt issued through the HCIA without additional borrowing. In 2006, the Hudson County Improvement Authority, a conduit issuer with no independent taxing authority, issued $39.4 million in bonds for the Harrison stadium land acquisition project, property which was to be developed as the future home of the New York Red Bulls of Major League Soccer. While lease payments from the Town of Harrison to the HCIA were expected to be the source of bond repayment, the bonds are ultimately backed by an unconditional general obligation guarantee of Hudson County (G.O rated Aa3/stable). Town management initially projected that ongoing redevelopment efforts and annually increasing PILOT payments would provide the source of payment for debt service to begin on December 15, 2010. However, the economic downturn has caused these PILOT payments to be lower than anticipated. Harrison initially projected PILOT payments to the town would be $2.3 million in 2008 with the expectation that they would ramp up to levels approximating $11.5 million in 2011. Actual PILOTs collected over the last three years have been approximately $900,000 in 2008, $980,000 in 2009, and $1.1 million in 2010 (unaudited). Harrison indicates that it will privately issue a one-month note in order to meet the first $3.1 million debt service payment due December 15th. Subsequently, the HCIA will issue bond anticipation notes in January 2011 backed by the general obligation pledge of Hudson County, and a portion of these proceeds will be used to repay the holder of the Harrison-issued note. (The Town of Harrison will be expected to pay back that portion of the notes to the HCIA.) This arrangement essentially allows the Town of Harrison to pay its debt service by issuing additional county-backed debt, an arrangement Moody's views as credit negative. In fiscal 2009, Harrison appropriated $1.75 million of Fund Balance and unaudited results indicate that this amount was fully replenished and the town added an additional $2.1 million to Fund Balance with $2.1 million from unexpended balance of appropriation reserves, $622,000 from nonbudget revenues and $597,000 from miscellaneous revenues in excess of budget. Harrison also deferred the state allowable portion of its pension contribution in fiscal 2009, which provided approximately $1.2 million in budget relief, which Moody's views as a one-shot revenue. The fiscal 2009 results bring the Current Fund balance to $3.9 million, or 10.4 percent of fiscal 2009 Current Fund revenues. Notably, Harrison did not issue tax anticipation notes (TANs) in 2009 after issuing $6 million in TANs in both fiscals 2007 and 2008. However, it did resume the practice in fiscal 2010 by issuing $4 million in TANs in April that mature in January 2011. Harrison appropriated $3.9 million of Fund Balance in fiscal 2010, continuing its tradition of anticipating all available Fund Balance as part of its subsequent year budget. Management indicates that approximately $4.7 million in state aid was cut compared to what it received in 2009 ($15 million in 2009 compared to $10.3 million in 2010), further reducing the town's financial flexibility and preventing it from making debt service payments with available revenues. Harrison eliminated approximately 53 positions in fiscal 2010, the results of which should yield approximately $3.5 million in savings in fiscal 2011. Management believes that it will end the fiscal year with a drawdown on Fund Balance, although the extent of the drawdown is not yet known. MODEST TAX BASE WITH BELOW-AVERAGE WEALTH LEVELS; DEVELOPMENT EFFORTS REMAIN SLOWED Moody's believes redevelopment of this northern New Jersey urban center, with wealth indicators well-below state medians, is critical to the town's financial health and future rating decisions. Approximately one-third of the town has been designated as a redevelopment area which is expected to leverage the town's location in western Hudson County, just north of Newark (G.O. rated A3/negative outlook), with proximity to New York City (G.O. rated Aa2/stable outlook). Equalized value per capita grew at a healthy five-year annual average rate of 12.6% through 2008, indicative of strong market value appreciation, before declining 14.7% in fiscals 2009 and 2010. Management initially projected PILOTs to the town at $2.3 million in 2008 with the expectation that they would increase to levels approximating $11.5 million in 2011. However, given the economic downturn, development has slowed and, as indicated above, PILOT payments have been significantly less than originally projected. Additionally, the town had been looking to the stadium for the Red Bulls professional soccer team, which was projected to open in the summer of 2008 but was delayed to 2010, to spur development and PILOT revenue. Income and wealth level levels in Harrison are well-below the state medians, with per capita and median family income at 68.5% and 74.2% of the state levels, respectively, and equalized value per capita of $77,882. DEBT BURDEN EXPECTED TO REMAIN SIGNIFICANTLY ABOVE-AVERAGE Moody's believes Harrison's overall debt burden will remain high (8.6% of equalized value), despite no significant near-term borrowing plans, given below-average amortization of principal (48% in 10 years), and a high level of direct debt (7.4% of equalized value). However, should the development discussed above materialize in the near term, it would have a positive impact on the debt profile. The direct debt burden includes school debt, given that Harrison has a Type 1 school district, as well as the $39.4 million of debt issued through the Hudson County Improvement Authority, for which a portion of the town's PILOT revenues are earmarked and the county has given its guarantee. REGULATORY DISCLOSURES Information sources used to prepare the credit rating are the following: parties involved in the ratings, and public information. Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating. Outlook Assignment of the negative outlook contemplates the town's likely difficulty in meeting debt service obligations over the near-term without additional borrowing in an environment of limited revenue growth. The negative outlook also reflects Harrison's cashflow borrowing, and Moody's expectation that redevelopment efforts will remain challenged over the near-term. Future rating decisions will be determined in large part by Harrison's ability to meet its future debt service payments with recurring revenues and not with additional borrowing. WHAT COULD MOVE THE RATING UP (REMOVAL OF THE NEGATIVE OUTLOOK): *An increase in PILOT payments by fiscal 2011 sufficient to pay debt service *Growth in the tax base from renewed development efforts *The cessation of cashflow borrowing *Adoption of conservatively structured budgets WHAT COULD MOVE THE RATING DOWN: *Any inability to execute financing plan to meet debt service payments on the stadium land acquisition bonds *Use of PILOT payment for town operations rather than debt service, as was originally intended *Continued reliance on short-term borrowing to pay debt service *Future debt issuances that materially increase the town's debt burden *Increased cashflow borrowing in relation to the budget *Further deterioration of the town's tax base KEY STATISTICS: 2008 Population (Est.): 15,201 (5.4% increase since 2000) 1999 Per Capita Income (as % of NJ and US): $18,490 (68.5% and 85.7%) 1999 Median Family Income (as % of NJ and US): $48,489 (74.2% and 96.9%) 2010 Equalized valuation: $1.184 billion 2010 Equalized value per capita: $77,882 Direct debt burden: 7.4% Overall debt burden: 8.6% Payout of principal: 48% over 10 years 2008 Current Fund balance: $1.8 million (4.9% of Current Fund revenues) 2009 Current Fund balance (unaudited): $3.9 million (10.4% of Current Fund revenues) Rated debt outstanding: $30.7 million HOLY SH8T! RUN FOR THEE BORDER,,,,,,,,,,,,,,,,,,,,,, Quote Link to comment Share on other sites More sharing options...
Guest BlueTideBacker Posted December 22, 2010 Report Share Posted December 22, 2010 This month Moody's (one of the big 3 investor credit agencies) downgraded Harrison's general obligation debt rating to Baa1 (the same as Ireland for those watching the news and seeing the European debt crisis). In addition, the town's negative outlook has been affirmed. This is truly an indication of the town's poor management. The town operates beyond its means and the people in power are unable or unwilling to solve the town's long term problems. Solutions are available, but they are difficult politically and for those with vested interests in government jobs. Namely, the town should merge services with East Newark and Kearny, hire a professional borough administrator and switch the town's form of government to allow an administrator position, switch the paid fire department to all volunteer, push to adjust union contracts to reduce pension and health care costs, eliminate as many full time positions as possible, switch to an elected school board, and prevent individuals having both elected and paid positions in the town. (The last two items bring greater accountability to the system and have less to do with cutting costs.) This town should be operating in crisis mode and doing everything possible to slash the long term budget obligation of the town. Undoubtedly town officials will blame the negative outlook on either 1) the poor economic situation nationally or 2) the State's reduction in municipal aid. This defense is narrow minded and excusable. First, town officials are ultimately responsible for the long term fiscal mess the town is in and should lead, not try to assign blame. Second, the State's fiscal condition is also poor and the town will have to carry more of its own burden going forward. However a one year reduction in municipal aid does not explain the longer term outlook expressed by Moody's, nor does it explain over $30 million in outstanding debt. Third, everyone must recognize that the town has been living beyond its means and must make long term, painful adjustments for the future. I realize that most people in Harrison are uninvolved, probably transient to the town, may not speak English, and have no idea what this rating is - and that uninvolved, uncaring behavior is exactly why people won't be up in arms over this rating (although they should be). This is a huge deal - a private company that receives a negative outlook has a massive stock sell off upon announcement. This is exactly the type of thing that lowers property value. This is the type of report people should be taking to the council meeting and demand to find out what the town's long term plan is to cut costs, raise revenues, and fix this problem. Settling for "redevelopment will raise revenues" is not a good enough answer (of note: I do support redevelopment in general). But the revenue projections are not conservative, they haven't proven to be true yet, and are unlikely to be as positive as the administration indicates over the next few years. These rosy projections need to be accompanied by major cost cutting and a coherent long term plan. See below for the report from Moody's: NEW YORK, Dec 9, 2010 -- Moody's Investors Service has downgraded to Baa1 from A1 the Town of Harrison's (NJ) long-term general obligation rating on approximately $30.7 million in rated outstanding debt secured by the town's general obligation, unlimited tax pledge. Concurrently, the negative outlook on the town has been affirmed. RATINGS RATIONALE The downgrade to a Baa1 rating reflects Harrison's use of short-term financing to make a debt service payment to the Hudson County Improvement Authority (HCIA) in fiscal year 2010. The bonds are guaranteed by Hudson County (G. O. rated Aa3/stable outlook) and were originally issued in 2006 with the expectation that they would first be repaid with payments in lieu of taxes (PILOT) from ongoing redevelopment, which has been delayed. The town is borrowing funds through a one-month, privately placed note in order to make the $3.1 million debt service payment and is expected to be repaid with proceeds from a bond anticipation note to be issued through HCIA's pooled note program. The downgrade also incorporates the town's narrow liquidity, below-average socioeconomic profile and elevated debt burden. Affirmation of the negative outlook reflects Moody's expectation that Harrison will remain challenged to meet near-term debt service obligation related to this HCIA-issued debt. Management may seek additional borrowing in 2011 as was done in 2010, but this will require approval from the state Local Finance Board. NARROWED FINANCIAL POSITION; CHALLENGES MAKING COUNTY-GUARANTEED DEBT SERVICE PAYMENTS Moody's believes Harrison will remain challenged to meet debt service payments on county-guaranteed debt issued through the HCIA without additional borrowing. In 2006, the Hudson County Improvement Authority, a conduit issuer with no independent taxing authority, issued $39.4 million in bonds for the Harrison stadium land acquisition project, property which was to be developed as the future home of the New York Red Bulls of Major League Soccer. While lease payments from the Town of Harrison to the HCIA were expected to be the source of bond repayment, the bonds are ultimately backed by an unconditional general obligation guarantee of Hudson County (G.O rated Aa3/stable). Town management initially projected that ongoing redevelopment efforts and annually increasing PILOT payments would provide the source of payment for debt service to begin on December 15, 2010. However, the economic downturn has caused these PILOT payments to be lower than anticipated. Harrison initially projected PILOT payments to the town would be $2.3 million in 2008 with the expectation that they would ramp up to levels approximating $11.5 million in 2011. Actual PILOTs collected over the last three years have been approximately $900,000 in 2008, $980,000 in 2009, and $1.1 million in 2010 (unaudited). Harrison indicates that it will privately issue a one-month note in order to meet the first $3.1 million debt service payment due December 15th. Subsequently, the HCIA will issue bond anticipation notes in January 2011 backed by the general obligation pledge of Hudson County, and a portion of these proceeds will be used to repay the holder of the Harrison-issued note. (The Town of Harrison will be expected to pay back that portion of the notes to the HCIA.) This arrangement essentially allows the Town of Harrison to pay its debt service by issuing additional county-backed debt, an arrangement Moody's views as credit negative. In fiscal 2009, Harrison appropriated $1.75 million of Fund Balance and unaudited results indicate that this amount was fully replenished and the town added an additional $2.1 million to Fund Balance with $2.1 million from unexpended balance of appropriation reserves, $622,000 from nonbudget revenues and $597,000 from miscellaneous revenues in excess of budget. Harrison also deferred the state allowable portion of its pension contribution in fiscal 2009, which provided approximately $1.2 million in budget relief, which Moody's views as a one-shot revenue. The fiscal 2009 results bring the Current Fund balance to $3.9 million, or 10.4 percent of fiscal 2009 Current Fund revenues. Notably, Harrison did not issue tax anticipation notes (TANs) in 2009 after issuing $6 million in TANs in both fiscals 2007 and 2008. However, it did resume the practice in fiscal 2010 by issuing $4 million in TANs in April that mature in January 2011. Harrison appropriated $3.9 million of Fund Balance in fiscal 2010, continuing its tradition of anticipating all available Fund Balance as part of its subsequent year budget. Management indicates that approximately $4.7 million in state aid was cut compared to what it received in 2009 ($15 million in 2009 compared to $10.3 million in 2010), further reducing the town's financial flexibility and preventing it from making debt service payments with available revenues. Harrison eliminated approximately 53 positions in fiscal 2010, the results of which should yield approximately $3.5 million in savings in fiscal 2011. Management believes that it will end the fiscal year with a drawdown on Fund Balance, although the extent of the drawdown is not yet known. MODEST TAX BASE WITH BELOW-AVERAGE WEALTH LEVELS; DEVELOPMENT EFFORTS REMAIN SLOWED Moody's believes redevelopment of this northern New Jersey urban center, with wealth indicators well-below state medians, is critical to the town's financial health and future rating decisions. Approximately one-third of the town has been designated as a redevelopment area which is expected to leverage the town's location in western Hudson County, just north of Newark (G.O. rated A3/negative outlook), with proximity to New York City (G.O. rated Aa2/stable outlook). Equalized value per capita grew at a healthy five-year annual average rate of 12.6% through 2008, indicative of strong market value appreciation, before declining 14.7% in fiscals 2009 and 2010. Management initially projected PILOTs to the town at $2.3 million in 2008 with the expectation that they would increase to levels approximating $11.5 million in 2011. However, given the economic downturn, development has slowed and, as indicated above, PILOT payments have been significantly less than originally projected. Additionally, the town had been looking to the stadium for the Red Bulls professional soccer team, which was projected to open in the summer of 2008 but was delayed to 2010, to spur development and PILOT revenue. Income and wealth level levels in Harrison are well-below the state medians, with per capita and median family income at 68.5% and 74.2% of the state levels, respectively, and equalized value per capita of $77,882. DEBT BURDEN EXPECTED TO REMAIN SIGNIFICANTLY ABOVE-AVERAGE Moody's believes Harrison's overall debt burden will remain high (8.6% of equalized value), despite no significant near-term borrowing plans, given below-average amortization of principal (48% in 10 years), and a high level of direct debt (7.4% of equalized value). However, should the development discussed above materialize in the near term, it would have a positive impact on the debt profile. The direct debt burden includes school debt, given that Harrison has a Type 1 school district, as well as the $39.4 million of debt issued through the Hudson County Improvement Authority, for which a portion of the town's PILOT revenues are earmarked and the county has given its guarantee. REGULATORY DISCLOSURES Information sources used to prepare the credit rating are the following: parties involved in the ratings, and public information. Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating. Outlook Assignment of the negative outlook contemplates the town's likely difficulty in meeting debt service obligations over the near-term without additional borrowing in an environment of limited revenue growth. The negative outlook also reflects Harrison's cashflow borrowing, and Moody's expectation that redevelopment efforts will remain challenged over the near-term. Future rating decisions will be determined in large part by Harrison's ability to meet its future debt service payments with recurring revenues and not with additional borrowing. WHAT COULD MOVE THE RATING UP (REMOVAL OF THE NEGATIVE OUTLOOK): *An increase in PILOT payments by fiscal 2011 sufficient to pay debt service *Growth in the tax base from renewed development efforts *The cessation of cashflow borrowing *Adoption of conservatively structured budgets WHAT COULD MOVE THE RATING DOWN: *Any inability to execute financing plan to meet debt service payments on the stadium land acquisition bonds *Use of PILOT payment for town operations rather than debt service, as was originally intended *Continued reliance on short-term borrowing to pay debt service *Future debt issuances that materially increase the town's debt burden *Increased cashflow borrowing in relation to the budget *Further deterioration of the town's tax base KEY STATISTICS: 2008 Population (Est.): 15,201 (5.4% increase since 2000) 1999 Per Capita Income (as % of NJ and US): $18,490 (68.5% and 85.7%) 1999 Median Family Income (as % of NJ and US): $48,489 (74.2% and 96.9%) 2010 Equalized valuation: $1.184 billion 2010 Equalized value per capita: $77,882 Direct debt burden: 7.4% Overall debt burden: 8.6% Payout of principal: 48% over 10 years 2008 Current Fund balance: $1.8 million (4.9% of Current Fund revenues) 2009 Current Fund balance (unaudited): $3.9 million (10.4% of Current Fund revenues) Rated debt outstanding: $30.7 million This is what happens when Zombies control the elections. 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Guest downwithfedres Posted December 22, 2010 Report Share Posted December 22, 2010 This month Moody's (one of the big 3 investor credit agencies) downgraded Harrison's general obligation debt rating to Baa1 (the same as Ireland for those watching the news and seeing the European debt crisis). In addition, the town's negative outlook has been affirmed. This is truly an indication of the town's poor management. The town operates beyond its means and the people in power are unable or unwilling to solve the town's long term problems. Solutions are available, but they are difficult politically and for those with vested interests in government jobs. Namely, the town should merge services with East Newark and Kearny, hire a professional borough administrator and switch the town's form of government to allow an administrator position, switch the paid fire department to all volunteer, push to adjust union contracts to reduce pension and health care costs, eliminate as many full time positions as possible, switch to an elected school board, and prevent individuals having both elected and paid positions in the town. (The last two items bring greater accountability to the system and have less to do with cutting costs.) This town should be operating in crisis mode and doing everything possible to slash the long term budget obligation of the town. Undoubtedly town officials will blame the negative outlook on either 1) the poor economic situation nationally or 2) the State's reduction in municipal aid. This defense is narrow minded and excusable. First, town officials are ultimately responsible for the long term fiscal mess the town is in and should lead, not try to assign blame. Second, the State's fiscal condition is also poor and the town will have to carry more of its own burden going forward. However a one year reduction in municipal aid does not explain the longer term outlook expressed by Moody's, nor does it explain over $30 million in outstanding debt. Third, everyone must recognize that the town has been living beyond its means and must make long term, painful adjustments for the future. I realize that most people in Harrison are uninvolved, probably transient to the town, may not speak English, and have no idea what this rating is - and that uninvolved, uncaring behavior is exactly why people won't be up in arms over this rating (although they should be). This is a huge deal - a private company that receives a negative outlook has a massive stock sell off upon announcement. This is exactly the type of thing that lowers property value. This is the type of report people should be taking to the council meeting and demand to find out what the town's long term plan is to cut costs, raise revenues, and fix this problem. Settling for "redevelopment will raise revenues" is not a good enough answer (of note: I do support redevelopment in general). But the revenue projections are not conservative, they haven't proven to be true yet, and are unlikely to be as positive as the administration indicates over the next few years. These rosy projections need to be accompanied by major cost cutting and a coherent long term plan. See below for the report from Moody's: NEW YORK, Dec 9, 2010 -- Moody's Investors Service has downgraded to Baa1 from A1 the Town of Harrison's (NJ) long-term general obligation rating on approximately $30.7 million in rated outstanding debt secured by the town's general obligation, unlimited tax pledge. Concurrently, the negative outlook on the town has been affirmed. RATINGS RATIONALE The downgrade to a Baa1 rating reflects Harrison's use of short-term financing to make a debt service payment to the Hudson County Improvement Authority (HCIA) in fiscal year 2010. The bonds are guaranteed by Hudson County (G. O. rated Aa3/stable outlook) and were originally issued in 2006 with the expectation that they would first be repaid with payments in lieu of taxes (PILOT) from ongoing redevelopment, which has been delayed. The town is borrowing funds through a one-month, privately placed note in order to make the $3.1 million debt service payment and is expected to be repaid with proceeds from a bond anticipation note to be issued through HCIA's pooled note program. The downgrade also incorporates the town's narrow liquidity, below-average socioeconomic profile and elevated debt burden. Affirmation of the negative outlook reflects Moody's expectation that Harrison will remain challenged to meet near-term debt service obligation related to this HCIA-issued debt. Management may seek additional borrowing in 2011 as was done in 2010, but this will require approval from the state Local Finance Board. NARROWED FINANCIAL POSITION; CHALLENGES MAKING COUNTY-GUARANTEED DEBT SERVICE PAYMENTS Moody's believes Harrison will remain challenged to meet debt service payments on county-guaranteed debt issued through the HCIA without additional borrowing. In 2006, the Hudson County Improvement Authority, a conduit issuer with no independent taxing authority, issued $39.4 million in bonds for the Harrison stadium land acquisition project, property which was to be developed as the future home of the New York Red Bulls of Major League Soccer. While lease payments from the Town of Harrison to the HCIA were expected to be the source of bond repayment, the bonds are ultimately backed by an unconditional general obligation guarantee of Hudson County (G.O rated Aa3/stable). Town management initially projected that ongoing redevelopment efforts and annually increasing PILOT payments would provide the source of payment for debt service to begin on December 15, 2010. However, the economic downturn has caused these PILOT payments to be lower than anticipated. Harrison initially projected PILOT payments to the town would be $2.3 million in 2008 with the expectation that they would ramp up to levels approximating $11.5 million in 2011. Actual PILOTs collected over the last three years have been approximately $900,000 in 2008, $980,000 in 2009, and $1.1 million in 2010 (unaudited). Harrison indicates that it will privately issue a one-month note in order to meet the first $3.1 million debt service payment due December 15th. Subsequently, the HCIA will issue bond anticipation notes in January 2011 backed by the general obligation pledge of Hudson County, and a portion of these proceeds will be used to repay the holder of the Harrison-issued note. (The Town of Harrison will be expected to pay back that portion of the notes to the HCIA.) This arrangement essentially allows the Town of Harrison to pay its debt service by issuing additional county-backed debt, an arrangement Moody's views as credit negative. In fiscal 2009, Harrison appropriated $1.75 million of Fund Balance and unaudited results indicate that this amount was fully replenished and the town added an additional $2.1 million to Fund Balance with $2.1 million from unexpended balance of appropriation reserves, $622,000 from nonbudget revenues and $597,000 from miscellaneous revenues in excess of budget. Harrison also deferred the state allowable portion of its pension contribution in fiscal 2009, which provided approximately $1.2 million in budget relief, which Moody's views as a one-shot revenue. The fiscal 2009 results bring the Current Fund balance to $3.9 million, or 10.4 percent of fiscal 2009 Current Fund revenues. Notably, Harrison did not issue tax anticipation notes (TANs) in 2009 after issuing $6 million in TANs in both fiscals 2007 and 2008. However, it did resume the practice in fiscal 2010 by issuing $4 million in TANs in April that mature in January 2011. Harrison appropriated $3.9 million of Fund Balance in fiscal 2010, continuing its tradition of anticipating all available Fund Balance as part of its subsequent year budget. Management indicates that approximately $4.7 million in state aid was cut compared to what it received in 2009 ($15 million in 2009 compared to $10.3 million in 2010), further reducing the town's financial flexibility and preventing it from making debt service payments with available revenues. Harrison eliminated approximately 53 positions in fiscal 2010, the results of which should yield approximately $3.5 million in savings in fiscal 2011. Management believes that it will end the fiscal year with a drawdown on Fund Balance, although the extent of the drawdown is not yet known. MODEST TAX BASE WITH BELOW-AVERAGE WEALTH LEVELS; DEVELOPMENT EFFORTS REMAIN SLOWED Moody's believes redevelopment of this northern New Jersey urban center, with wealth indicators well-below state medians, is critical to the town's financial health and future rating decisions. Approximately one-third of the town has been designated as a redevelopment area which is expected to leverage the town's location in western Hudson County, just north of Newark (G.O. rated A3/negative outlook), with proximity to New York City (G.O. rated Aa2/stable outlook). Equalized value per capita grew at a healthy five-year annual average rate of 12.6% through 2008, indicative of strong market value appreciation, before declining 14.7% in fiscals 2009 and 2010. Management initially projected PILOTs to the town at $2.3 million in 2008 with the expectation that they would increase to levels approximating $11.5 million in 2011. However, given the economic downturn, development has slowed and, as indicated above, PILOT payments have been significantly less than originally projected. Additionally, the town had been looking to the stadium for the Red Bulls professional soccer team, which was projected to open in the summer of 2008 but was delayed to 2010, to spur development and PILOT revenue. Income and wealth level levels in Harrison are well-below the state medians, with per capita and median family income at 68.5% and 74.2% of the state levels, respectively, and equalized value per capita of $77,882. DEBT BURDEN EXPECTED TO REMAIN SIGNIFICANTLY ABOVE-AVERAGE Moody's believes Harrison's overall debt burden will remain high (8.6% of equalized value), despite no significant near-term borrowing plans, given below-average amortization of principal (48% in 10 years), and a high level of direct debt (7.4% of equalized value). However, should the development discussed above materialize in the near term, it would have a positive impact on the debt profile. The direct debt burden includes school debt, given that Harrison has a Type 1 school district, as well as the $39.4 million of debt issued through the Hudson County Improvement Authority, for which a portion of the town's PILOT revenues are earmarked and the county has given its guarantee. REGULATORY DISCLOSURES Information sources used to prepare the credit rating are the following: parties involved in the ratings, and public information. Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating. Outlook Assignment of the negative outlook contemplates the town's likely difficulty in meeting debt service obligations over the near-term without additional borrowing in an environment of limited revenue growth. The negative outlook also reflects Harrison's cashflow borrowing, and Moody's expectation that redevelopment efforts will remain challenged over the near-term. Future rating decisions will be determined in large part by Harrison's ability to meet its future debt service payments with recurring revenues and not with additional borrowing. WHAT COULD MOVE THE RATING UP (REMOVAL OF THE NEGATIVE OUTLOOK): *An increase in PILOT payments by fiscal 2011 sufficient to pay debt service *Growth in the tax base from renewed development efforts *The cessation of cashflow borrowing *Adoption of conservatively structured budgets WHAT COULD MOVE THE RATING DOWN: *Any inability to execute financing plan to meet debt service payments on the stadium land acquisition bonds *Use of PILOT payment for town operations rather than debt service, as was originally intended *Continued reliance on short-term borrowing to pay debt service *Future debt issuances that materially increase the town's debt burden *Increased cashflow borrowing in relation to the budget *Further deterioration of the town's tax base KEY STATISTICS: 2008 Population (Est.): 15,201 (5.4% increase since 2000) 1999 Per Capita Income (as % of NJ and US): $18,490 (68.5% and 85.7%) 1999 Median Family Income (as % of NJ and US): $48,489 (74.2% and 96.9%) 2010 Equalized valuation: $1.184 billion 2010 Equalized value per capita: $77,882 Direct debt burden: 7.4% Overall debt burden: 8.6% Payout of principal: 48% over 10 years 2008 Current Fund balance: $1.8 million (4.9% of Current Fund revenues) 2009 Current Fund balance (unaudited): $3.9 million (10.4% of Current Fund revenues) Rated debt outstanding: $30.7 million One projection can made:State and local governments are NOT going to default.They will squeeze the taxpayers in myraid ways(and cut services below the bone).Their instinct is for their survival;not yours.I must confess that I'm rooting for this to play out this way as most of my wealth is tied up in state tax exempt bonds. 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Guest Guest Posted December 23, 2010 Report Share Posted December 23, 2010 Let's work to fix this! Municipal consolidation. Although our elected representatives have well paying positions to protect, the voters in a district can force a consolidation commission to be created without involving the elected councils. Merge Harrison, Kearny, East Newark. Eliminate as many positions as possible, switch to a volunteer fire department, and on and on... We can easily have 1 superintendent for the three towns, 1 police chief, 1 head of each department (public works, town clerk, tax, etc.), etc. This area doesn't have to be so poorly managed and wasteful! We can have great service at less cost! http://www.nj.gov/dca/lgs/share/joint/muni_consol_act.pdf Quote Link to comment Share on other sites More sharing options...
Guest Guest Posted December 23, 2010 Report Share Posted December 23, 2010 Let's work to fix this! Municipal consolidation. Although our elected representatives have well paying positions to protect, the voters in a district can force a consolidation commission to be created without involving the elected councils. Merge Harrison, Kearny, East Newark. Eliminate as many positions as possible, switch to a volunteer fire department, and on and on... We can easily have 1 superintendent for the three towns, 1 police chief, 1 head of each department (public works, town clerk, tax, etc.), etc. This area doesn't have to be so poorly managed and wasteful! We can have great service at less cost! http://www.nj.gov/dca/lgs/share/joint/muni_consol_act.pdf Don't worry, Dolaghan, Bennet, Jesus, and their ilk will save us. Quote Link to comment Share on other sites More sharing options...
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