The downgrading of government and municipal bonds is nothing new, but business owners are carefully considering the credit access of local governments as New Jersey faces challenges in selling investment bonds.
According to a recently published report, New Jersey has six municipalities with speculative bond ratings, the most of any state, according to Moody’s Investment Services. Camden, Collingswood, Harrison, Irvington, Salem and Weehawken all have debt rated at Ba1 or below, commonly known as “junk bonds.”
During a panel discussion last week, Ed McManimon, of McManimon & Scotland LLC, said he asked Josie Yousef, of Moody’s, if having a higher number of municipalities with junk bond ratings could affect the state and surrounding communities.
“She said it has no impact because each rating is individually analyzed, and is not a generic implication for the state of New Jersey from those downgrades. Her view was that those downgrades were specific,” said McManimon, who is economic development counsel for the New Jersey League of Municipalities.
But the increased cost and limited access to borrowing that becomes associated with municipal bond downgrades could affect businesses in the affected areas.
“Business that have been there a long time, they’re not making their decisions directly or principally on the credit rating of the town,” McManimon said. “They’re basing it on the services they perceive they’re getting or not getting, and whether there is vibrancy to the town,” which could be affected if capital project borrowing is diminished.
Moody’s indicated that delayed redevelopment projects that were guaranteed with municipal bonds were a leading cause for the bond downgrade for Collingswood, Harrison and Salem. McManimon said he disagreed with the Collingswood and Harrison downgrades because the projects were “managed risk.”
Collingswood Mayor James Maley responded to the town’s downgrade, which was associated with the LumberYard condominium project in addition to several other redevelopment moves, by holding a town hall to address community questions.
“Businesses have had some questions and concerns, but people have been very supportive, and expect this is an aberration that we will be able to rectify,” Maley said in an e-mail, adding that only a re-rating would mitigate the impact of the downgrade.
“Moody’s report indicates they would be reviewing us over the next 90 days, so they anticipated follow up and review,” Maley said.
“Collingswood is generally a high-quality town that doesn’t have these financial problems like Camden and Irvington and places that have been chronically experiencing economic stress,” McManimon said. “They have a very dynamic, knowledgeable mayor … he’s done some tremendous things in Collingswood, which is why I’m very surprised that Moody’s didn’t take into account the many years of significant fiscal management and risk management.”
Developers with projects in Weehawken and Harrison did respond to requests for comments before publication.