Moody’s Investor Service on Friday assigned an Aa1 long-term and MIG 1 short-term rating to Berkeley Heights, bonds and notes, noting the Township’s financial position has improved over the past few years, and also highlighted its increasing revenue streams and reserves.
“The management team in Berkeley Heights has been extremely active improving the overall fiscal health of the township,” Moody’s said in their report. “The team has worked to secure new PILOT revenue to be added to the budget and help address capital projects. Additionally, the township is working to improve reserves to keep its financial position strong.”
The Aa1 rating – which is the second highest rating a municipality can receive - applies to the Township’s approximately $23.8 million General Improvement Bonds, Series 2022 and the MIG 1 applies to its approximately $9 million Bond Anticipation Notes, Series 2022. Moody’s maintains a Aa1 on the township’s outstanding general obligation unlimited tax (GOULT) bonds and a MIG 1 on its outstanding notes. These ratings essentially indicate the Township’s credit worthiness and ability to borrow money.
“The financial position has improved over the past several years and will remain healthy through fiscal 2022 as actual operations are trending better than budget, year-to-date,” Moody’s noted in their accompanying report (click here to view the full report). “The debt burden of the township is slightly above peers but the township made a large one-time pay down in fiscal 2021 with the sale of property,” they added, in reference to the $10 million sale of the former Little Flower property on Hamilton Ave.
“We greatly appreciate Moody’s recognition of the conservative approach we have taken when it comes to our finances in recent years. That is not an easy task when so much money is needed to address our crumbling infrastructure,” said Mayor Angie Devanney. “This is why we are chasing every source of grant revenue, as well as county, state and federal financing for a variety of Township infrastructure projects involving roads, drainage and our sewer plant.
“But we are also searching for grants for our emergency service crews – such as our all-volunteer Fire Department and Rescue Squad – as well as Recreation, trails, historic preservation and other Township needs. We cannot let other corners of our community crumble or go without while we continue to pay down our debt. We need to be creative in how we tackle all of it.”
Moody’s noted that grant work, as well, saying: “In the near-term, the township expects to authorize $2 million annually for routine infrastructure improvements. The township has ongoing capital needs and will be working to leverage grants, low-interest state loans, and internal funds to avoid issuing excessive long-term debt in the future.”
What It Means
The Aa1 GOULT rating reflects the township’s wealthy and growing tax base and healthy financial position that is set to hold strong through fiscal 2022. The Aa1 also reflects its above-average long-term liabilities and fixed costs, such as the Township’s pension and contractual retirement benefit liabilities. The MIG 1 short term rating reflects the township's strong fundamental credit quality, reflected in its Aa1 long-term credit rating and an established record of market access.
“The township has several new projects that will be additions to the local economy while adding new PILOT revenue,” Moody’s noted, referring to the six redevelopment projects underway as a result of the Township’s state affordable housing obligations, which will help the local economy.
The Township’s debt burden will remain “slightly elevated,” even with the 2021 $10 million paydown on the municipal complex debt from the sale of the old Little Flower property on Hamilton Avenue.
The township's Moody's-adjusted Current Fund Balance increased to $6.2 million (27%) from $4.8 million (22.6%) in 2019; township revenues stream come mostly from property taxes, accounting for 63% of revenues, followed by other miscellaneous revenues at 24% of revenues.
Fiscal 2021 unaudited results show another strong year for the township. Adjusted fund balance is set to increase to $9.7 million or 27.2% of revenue. The increase in the fund balance reflects very strong revenue collections particularly in above-average property tax collections, construction code fees, and sewer fees.
The fiscal 2022 budget is largely similar to previous years, Moody’s continued. The township increased its tax levy 2.5% while aiming to be conservative in its other miscellaneous revenues. Year-to-date, the township's revenue collections have been very strong while spending is in line with budget. The township is expecting to at least replenish its use of fund balance ($2.8 million) and potentially add to reserves by the end of the year.
“What this all means is that Berkeley Heights is on a better path forward, financially,” added Mayor Devanney. “We will continue to seek out any and all possible funding for our community’s needs, as well as looking into other potential revenue streams to help us pay for important township projects. But if we need to continue to adequately chip away at our debt to maintain in good financial standing.”
Click here to view the slideshow highlighting various components of the Moody's report.