Moody's Downgrades Town Bond Rating

A top Wall Street bond rating service has downgraded the town's debt rating Tuesday, citing concerns over the town's dwindling surplus.

Moody's Investors Service downgraded the town from a Aa1 rating to a Aa2 rating on the town's $8.85 million in general obligation debt. The move comes a year after Standard & Poors upgraded the town's bond rating to AAA after the town refinanced it's outstanding debt.

In the rating report, Moody's cited concerns over the town government's practice of utilizing surplus funds in balancing the town's budget. The town has spent roughly $4 million in surplus since 2008, including all but $711 of the town's sale of assets account, which was roughly $3.8 million in 2008. The report cited the town's coping with the old four percent property tax cap imposed by the state as one of the reasons behind the surplus spending. The report said that the town will likely face struggles in budget balancing going forward based on the state tax cap and the surplus spending.

"Moody's believes the town's financial position and liquidity will remain pressured, following five consecutive operating deficits, as continued revenue weaknesses and ongoing expenditure demands challenge the town's ability to regain structurally balanced operations," the rating report reads.

The report also cites the town will be strapped by the stagnant economy and the growing amount of property tax appeals currently pending, which could impact revenue going forward. The report notes that the differences between the town's fiscal year and the school district's fiscal year leads to issues related to payment of school taxes from the town to Board of Education and the impact on the town's fiscal planning.

Moody's does positively cite the town's debt management program which requires the town to have a two year capital management plan and increased attention to the spending of capital funds and accumulation of long term debt. The report also notes that the town has a modest debt burden and no future plans to accumulate more debt

The downgrading of the town's bond rating will likely lead to a slight increase in interest rates for future bonds but Wall Street insiders agreed that the results of the report should be interpreted as more of a warning to town officials about the town's use of the surplus in the budget.

Surplus spending became an issue in the 2009 mayor's race when Democratic nominee Bill Brennan raised concerns against the use of the practice and criticized Mayor Andy Skibitsky for endorsing the practice.

Town officials said they see the report as raising more concerns about state fiscal practices, noting the need to pass Gov. Chris Christie's proposed property tax toolkit, along with defending the use of surplus in balancing the town budget.

Councilman Mark Ciarrocca, the chairman of the town's finance committee, said he is pleased that Moody's cited the debt management plan as a positive in the town budget and mentioned the property tax cap as a negative. He also defended the surplus spending.

"That surplus was there for strategic reasons," he said. "What we've tried to do is maintain services in the budget."

Ciarrocca cited actions in the current town budget including new contracts with the firefighters and public works employees which contain one year salary freezes and changes, along with a one year salary freeze for non-union employees of the town. He said a budget without surplus spending would have caused more cuts, than the town's decision to implement a hiring freeze, abolish the Department of Human Services, cut crossing guards and make other cuts in the town's workforce.

"That would have made for drastic cuts for services people in town rely upon," Ciarrocca said of a budget without surplus funding.

Mayor Andy Skibitsky finds the report to be a positive, saying that given the fiscal challenges the town has faced in the last several years the town should be pleased to have a rating as high as Aa2. Skibitsky cited the town's cuts in state aid, the property tax cap and the rise in Rahway Valley Sewerage Authority fees.

"It was very positive," Skibitsky said. "If you look at what a Aa2 rating means it means we are strong from a credit standpoint, considering what we have had to deal with for the past five years."

Skibitsky said the results in the report are an endorsement to the property tax toolkit pending in the state legislature. The toolkit includes proposals for arbitration reform and shared services. Skibitsky and the Town Council formally endorsed the toolkit earlier this summer.

"It shows the importance that we get the toolkit passed," Skibitsky said of the report.