Fitch Rates Jersey City, NJ GOs 'AA'/'A+'; Affs Underlying GOs at 'BBB'.

NEW YORK -- Fitch Ratings assigns an 'AA' rating to the city of Jersey City's $12.83 million general obligation (GO) qualified school refunding bonds, series 2007C, based on the enhancement provided by the New Jersey School Credit Enhancement Program's School Bond Reserve. Fitch also assigns an 'A+' rating to the city's $26.74 million qualified general improvement refunding bonds, series 2007A, and $9.69 million qualified water refunding bonds, series 2007B, based on the enhancement provided by the Municipal Qualified Bond Act. The bonds are scheduled for negotiated sale on April 11 through UBS Investment Bank Concurrently, Fitch assigns the underlying rating of 'BBB' to the series 2007A, series 2007B, and series 2007C bonds and affirms the 'BBB' on the city's outstanding general obligation bonds. The Rating Outlook is Stable.

The underlying 'BBB' rating reflects the city's continuing structural financial imbalance, above-average unemployment rate, and below-average wealth levels. Like all New Jersey municipalities, Jersey City guarantees 100% of property tax receipts to both the county and school district, creating heightened vulnerability to its tax-supported revenue stream. Offsetting these credit concerns are strong property tax collection rates, moderate debt levels, and the city's favorable geographic location. The city has experienced strong economic growth driven by increased commercial and residential development and has consistently maintained sufficient operating reserves. The dynamic and diversified economy, if its strength continues, will provide longer term mitigation of the risk factors.

Located in Hudson County (GOs rated 'A+' with a Stable Rating Outlook by Fitch) just across the Hudson River from New York City, Jersey City continues to experience substantial growth as redevelopment efforts along the waterfront areas bring about increased commercial, industrial, and residential investment. As a result, equalized property values have grown by a strong 20.5% on an average annual basis since 2000. The city's population, which recouped losses sustained during the 1970s through modest growth in the 1980s and 1990s, has been relatively stable since the 2000 census. The 2005 estimate indicated a slight drop from the 2000 figure. Attributable to the city's proximity to New York City, employment in the finance, insurance, and real estate (FIRE) sector exceeds state and national averages, and the city counts several major investment firms among its top employers. The unemployment rate has declined annually since 2002, dropping from 8.8% in 2002 to 5.9% in 2005. The December 2006 level showed a further decrease to 5.1% from 5.3% in December 2005, continuing the city's improvement relative to state and national averages on an annual basis in recent years. Per capita personal income in 2005 represented 69% of the state's high average and 87% of national levels.

The city's financial position remains strained by rising health insurance and other employee-related costs, though a recent debt restructuring introduced some debt service relief in the near term and will assist in reducing the city's structural budgetary imbalance. Following a $10.2 million operating deficit in fiscal 2005 that reduced the city's current fund balance to $23.8 million, or 6% of municipal spending, the city posted a current fund surplus of about $9.8 million to raise fund balance to $31.7 million or 7.4% of spending. The unreserved portion of the fund balance for fiscal 2006 was $19.4 million, or 4.5% of spending. While the city began fiscal 2007 with a $10 million structural gap, city officials expect an increase of payments in lieu of taxes (PILOTs) of nearly $10 million over budget to close the gap.

Jersey City's debt levels remain moderate. Strong increases in equalized values of city property have significantly reduced the overall debt burden from 5.1% of 2002 equalized value to 2.3% for 2006. Debt per capita, reflecting increased borrowing and stable population levels, has risen over the same period from $1,589 to $1,993. Debt levels may increase modestly as the city's $191 million capital improvement plan (CIP) will be primarily debt funded. Debt on behalf of the city's school district - which is considered an Abbott district for state funding purposes, indicating its tremendous need for increased funding and educational improvement - is issued and funded by the state. The city also provides a GO backup to all Municipal Utility Authority (MUA) debt, although the city has never had to pay debt service on bonds supported by MUA revenues. Approved annual water rate increases through 2015 are designed to ensure continued self-sufficiency of the authority.

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