Woodbridge May Experience "Severe Credit Stress" Because of Sandy, Says Moody's

Six local government entities were singled out by Moody's Investor Service, one of the big three municipal bond rating agencies, in a report as potentially coming under "significant credit stress" because of the impact of Hurricane Sandy in late October. 

Three Jersey shore towns - Seaside Heights, Atlantic City and Brick Township - made Moody's list of those facing financial stress because of the hurricane's damage and destruction. 

Also on that short list was Woodbridge.

While some sections of Woodbridge Township are at or near the water, such as Sewaren and Port Reading, the municipality is relatively sheltered next to southern municipalities directly on the Jersey shore.

The township's potential financial problems are less about the hurricane's destructiveness to Woodbridge, said Moody's analyst David Jacobson, than it is the effects of the Hess Refinery's shutdown pre-Sandy and its closure for more than two weeks.

Hess "is one of the township's biggest employers and biggest taxpayers," Jacobson said.

The refinery, located in the Port Reading section of Woodbridge, just began its restart operations on November 14.

Towns 'heavily affected'

The Moody's report on the financial impact of Hurricane Sandy spells out the six local municipalities it considers to be "heavily affected" by the storm, saying that the towns could experience short, medium, and long term problems with their finances.

That's because with disruptions from the hurricane, some municipalities will be hard pressed to come up with cash for their expenses, and that could affect their credit ratings, the report said.

The Federal Emergency Management Agency (FEMA) will be reimbursing local governments for much of the Sandy expense. But the Moody's report says that that's a time-consuming process, and meanwhile, municipalities have bills to pay and payrolls to meet.

In the case of Woodbridge, the report states, "While the overall extent of the damages to the local economy have yet to be determined, the township, which has a relatively narrow financial position, could be challenged in the near term to cover the costs associated with the storm recovery efforts."

The "narrow financial position", Jacobson said, is the amount of money the township has to rely on. According to an appendix in the report, the township's cash on hand to meet immediate expenses is 34 days.

Woodbridge's 'unfavorable' rating

The bigger issue is that Woodbridge was only recently taken off a Moody's list that rated the township's financial health as "unfavorable." The municipality is rated by Moody's as Aa2, which Jacobson said is "our third highest rating."

The initial reason for the "unfavorable" rating was because "the township's fund balance fell 80 percent," Jacobson said. He explained that general fund revenues the township relied on dropped from $8 million in 2006 to $1.6 million in 2010. There was also a decline in the tax base because of the recession that still plagues the region.

The township's financial situation modestly stabilized, Jacobson said, and Woodbridge's "unfavorable outlook" rating was removed late last year.

"Woodbridge had a lot of commercial growth," he said as well as a relatively wealthy and stable tax base. "There's a lot of activity on Route 1, and there are a lot of PILOT (Payment in Lieu of Taxes) payments to the town."

The Moody's report said that the overall effects of the hurricane are still to be seen, but it could include a downward change in Woodbridge's Aa2 credit rating. The report focused on the Hess closure as being the primary cause for any major financial impact on the township, and like other municipalities, biding their time until FEMA reimbursements kick in.

Meanwhile, the municipality can do what other towns do: borrow money to tide themselves over, or, Jacobson said, raise revenue through raising property taxes.

The 2 percent property tax cap New Jersey municipalities are under doesn't apply in disaster situations, he said.

Mayor John McCormac could not be reached for comment.

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