MOODY’S INVESTORS SERVICE GIVES POSITIVE OUTLOOK TO ESSEX COUNTY’S FINANCIAL STANDING

Essex County Executive DiVincenzo’s Administration is Credited with Restoring Fiscal Integrity to Essex County

Newark, NJ – Essex County Executive Joseph N. DiVincenzo, Jr. announced on Thursday, March 25th that Moody’s Investor’s Service has upgraded Essex County’s financial standing. While the Wall Street agency maintained Essex County’s bond rating at Baa2, it improved the financial outlook to Positive from Stable.

This action by Moody’s reverses the downward spiral of Essex County’s financial standing. It is the first time since 1997 that the rating or financial outlook has been upgraded.

“When I took office on January 1, 2003, we inherited $22 million of deferred charges from the previous administration and Essex County’s finances were a mess,” DiVincenzo said. “We had to make some very difficult decisions and have implemented a five-year plan that has become our blueprint for fiscal responsibility. We laid off employees, eliminated wasteful contracts, kept a watchful eye on spending and tightened our belts in every department,” he noted.

“In just one year, we have been able to return fiscal stability, discipline and integrity to Essex County,” DiVincenzo said. “We have worked hard to restore order to our budget and this upgrade by Moody’s shows they have confidence in our recovery plan and the future of Essex County,” he noted.

The Moody’s report credits this long-range recovery plan initiated by DiVincenzo’s administration as the reason for the upgrade. “The positive outlook reflects success that a newly elected fiscal management team (which took office in 2003) has had to date in reducing reliance on one time revenues, eliminating deferred charges (equivalent to fund deficits) and augmenting fiscal reserves,” the report states.

“During our first 15 months in office, we have taken an aggressive approach to get our expenses under control,” the County Executive said. “This has not been an easy task and it would not have been possible without the cooperation my administration received from all our directors, the Constitutional Officers and the independent agencies that we do business with,” he noted.

During DiVincenzo’s first year in office in 2003, he introduced a budget of $584.5 million, which included paying for the $22 million of deferred charges from the previous year. Without having to pay the deficit left by the previous administration, spending in 2003 would have decreased to $562.5 million, which is $9 million less than the $571 million budget of 2002. DiVincenzo also took his budget to the taxpayers, hosting town meetings in Millburn, Montclair and Roseland to explain the budget process and the numerous obstacles – such as uncontrollable state mandates – that Essex County is faced with.

The County Executive showed his commitment to getting a handle on the budget by introducing a 2004 budget proposal of $547 million by the statutory January 15th deadline – the first time in almost two decades that a County Budget has been introduced on time. The 2004 budget proposal reduces County spending for a second consecutive year and currently is being reviewed by the Board of Freeholders.

In addition to controlling costs in the County budget, DiVincenzo has worked cooperatively with the Essex County Improvement Authority, Essex County Utilities Authority, Essex County Vocational School District and Essex County College and has reduced spending in these independent agencies by a total of $6.1 million over the last 15 months. This was accomplished through layoffs, eliminating unnecessary and expensive contracts for consultants and attorneys, and reducing operating expenditures. It should be noted that these cutbacks have not affected services and, in the case of the Votech District and ECC, have not affected classroom instruction or programs for students.

The upgrade to a Positive Outlook reverses a trend in which Essex County has seen its bond rating and financial outlook downgraded over the last 10 years. From 1985 to 1994, Essex County enjoyed an A1 rating from Moody’s. The first downgrade to an A rating came in December 1994 and another downgrade to a Baa1 rating came in March 1995. In April 1997, Essex County’s bond rating remained at Baa1, but its financial outlook improved to a Positive Outlook. The outlook then declined to Stable in July 2001 and to Negative in April 2002 before Moody’s downgraded Essex County’s rating to Baa2 with a Stable Outlook in November 2002.

Moody’s analysts also hinted in their March 23rd report that Essex County’s financial standing could improve even more – “continuation of these efforts likely to result in a credit upgrade” – if the current financial recovery plan is continued. “Savings from the opening of the new county jail and growing recurring revenues – both locally and potentially from the state – should enable the county to return to a state of near structural balance,” states the Moody’s report.

Simply explained, structural balance means the revenue raised by the County through ordinary means is sufficient to pay for its expenses. Moody’s has criticized Essex County in the past for using “one shot” or non-recurring revenues, such as selling property, to generate additional revenue to balance its budget.

A higher bond rating will have a positive effect on Essex County’s finances when it sells its capital bonds on the market. Higher ratings translate into lower insurance costs for Essex County and make the bonds more attractive to investors.

Moody’s re-evaluated Essex County’s bond rating after Essex announced its intentions to refinance $223 million of existing bonds and $3.7 million of Airport bonds from the Essex County Improvement Authority. These are expected to be sold later in the spring.

# # #