S&P Reaffirms Ocean City's AA Bond Rating

Ocean City, NJ -- Ocean City will retain its AA rating from Standard and Poor’s as it prepares to issue $38.8 million in bonds to help pay for infrastructure projects, Mayor Jay Gillian announced Friday afternoon.

“The news is important because the rating will lead to low interest rates that will save taxpayers millions of dollars over the life of the bonds,” Gillian said. “ … The strong bond rating also will help us continue to make responsible investments in road and drainage projects, dredging and other important infrastructure work.”

S&P noted Ocean City’s “strong economy ... strong management ... strong budgetary performance ... strong budgetary flexibility ... very strong liquidity ... and strong institutional framework score.”

The city’s market value grew by 2.8% over the past year, to $12 billion, according to the S&P report.

“The city had slight surplus operating results in the general fund of 0.8% of expenditures in fiscal 2015. General fund operating results have been stable over the past three years, with a result of 0.7% of general fund expenditures in 2014 and 0.5% in 2013,” the report says.

S&P also credited Ocean City’s ability to pay off debt incurred from 2012’s Hurricane Sandy. Ocean City issued $3.6 million in special emergency notes in 2012 to fund damage repair related expenditures.

Earlier this month, the city received a state grant for $403,889 that will cover the final costs related to the cleanup. Ocean City had five years to pay off the full cost.

“The fiscal 2016 budget is using $3.7 million in reserves. However, due to Ocean City's conservative budgeting practice, it is anticipating at least break-even operations with the potential to have a small surplus, which would go to the fund balance. While the city is just starting to plan its fiscal 2017 budget, we would expect the pattern of at least break-even operations to continue,” the report says.

However, the report did classify Ocean City’s debt and contingent liability profile as “weak.”

“In our opinion, a credit weakness is Ocean City's large pension and OPEB obligation, without a plan in place that we think will sufficiently address it. The combined required pension and actual OPEB contributions totaled 9.7% of general fund expenditures in 2015. Of that, 5.7% represented required contributions to pension obligations, and 4.0% represented OPEB payments,” the report says. “The city made its full annual required pension contribution in 2015. We expect these costs to increase due to the low funded ratios of the state plans (38.21% for the Public Employees' Retirement System (PERS) and 52.84% for the Police and Firemen's Retirement System (PFRS) in fiscal 2015). OPEB is funded on pay-as-you-go basis. The OPEB plan's unfunded accrued actuarial liability is $119 million, about 1.6x of the current fund revenues.”

“If the city should improve its debt position or pension funding ratios improve, we could raise the rating,” S&P states in its upside scenario.

The downside scenario states, “If budgetary performance were to weaken, causing reserve levels to decrease to levels we consider low or inadequate, we could lower the rating.”

Click here to read the full report.

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