2013-09-19 / Front Page
Report: South Amboy has ‘limited financial flexibility’
Standard & Poor (S&P) downgraded South Amboy’s bond rating to A- from A+ last week, and has given a negative outlook.
“In our view, South Amboy’s finances are weak,” the report reads. “The city has issued increasing amounts of emergency notes in the previous few years as municipal revenue has not kept pace with rising public safety costs as well as recent higher costs related to superstorm Sandy.”
The ratings range from AAA to D, and are forward-looking credit risk assessments. A downgrade can impact the cost of borrowing in the future. The report, released Sept. 11, points out operating deficits of $43,000 and $82,685 for 2011 and 2012, respectively, and the issuance of notes for $855,000 last year, up from $350,000 in 2011.
The report does point out that 2012’s notes included $515,000 of Sandy-related bonds, but cites that officials report they have only received $250,000 in Federal Emergency Management Agency (FEMA) reimbursement funds.
This year, the city also issued about $750,000 in emergency notes to pay for a litigation settlement in the Rocky Top LLC case concerning the opening of a drug rehabilitation facility in South Amboy. According to Division of Community Affairs spokeswoman Lisa Ryan, the Local Finance Board approved on Aug. 14 the city’s application for a waiver of down payment in connection with $2 million in bonding for projects related to Sandy damage.
“We base the downgrade on the city’s ongoing reliance on emergency notes for operations,” the report reads. “The negative outlook reflects our view of South Amboy’s limited financial flexibility and potential for further operating deficits and growing emergency note issuance.”
In addition to using notes for municipal operating expenditures, the report also points out that the city has “limited revenueraising flexibility since the city raised the property tax levy to the maximum in fiscal 2013” and assessed valuation declines.
The report says that S&P may lower the rating further if the city fails to restore its fiscal health over the next two years without taking on additional debt.
However, the report also points out three factors that could mitigate these problems: the city’s “diverse, residential tax base” with a location accessible to New Jersey and New York’s primary employment centers; good average income; and belowaverage unemployment of its residents. In addition, the report says the overall net debt burden is “moderate to low” with “limited additional capital needs.”
“We review municipalities each time they go to the capital markets to issue debt, and we also do annual reviews,” S&P spokesman Olayinka Fadahunsi said. “The downgrade was prompted by our general review of the credit.”
The city was first rated in 2010, she said.
South Amboy officials who were contacted did not respond to requests for comment.