Fitch Rates Skokie, IL Refunding GOs 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Village of Skokie, IL (the village) bond issue:

--$15.96 million general obligation (GO) refunding bonds, series 2010.

The bonds are scheduled to sell via negotiation on Aug. 24, 2010.

In addition, Fitch affirms the following ratings:

--$76.5 million GO bonds affirmed at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Skokie benefits from its diverse revenue sources and consistently above-average unreserved fund balance providing superior financial flexibility.
--The village has significant exposure to economically sensitive sales taxes and other non-property tax revenues which have experienced significant declines over the last two fiscal years, although recent receipts show some improvement.
--The village's conservative management team has made prudent decisions in controlling expenses and increasing revenues and anticipates a small surplus for fiscal 2010.
--Proximity to Chicago and expanding transportation network attracts a professional work force with above-average wealth levels.
--Debt levels are moderate with above-average amortization and pension and other post employment benefit (OPEB) liabilities are manageable.

KEY RATING DRIVER:

-- Maintenance of reserves within policy limits is a key rating driver due to reliance on economically sensitive non-property tax revenues.

SECURITY:
The bonds are a general obligation of the village backed by its full faith and credit and unlimited taxing power.

CREDIT SUMMARY:

Skokie is located in Cook County, 16 miles northwest of downtown Chicago and 12 miles east of O'Hare International Airport. It has a population of 66,000 which is up 4.9% from 2000. It has a diverse economic base consisting of three large shopping centers, including the Old Orchard Shopping Center, the village's largest taxpayer, and various commercial and industrial areas. Planning is underway for a new train station (Skokie Swift) which will enhance commuters' access to Skokie's downtown and Science and Technology Park, helping to promote redevelopment and business relocation. The village's unemployment rate, although still high at 8.9% as of June 2010, has declined marginally from 9.2% a year earlier, and is still below the state's rate of 10.6%. The village's large tax base with an estimated true value as of 2009 of $9.8 billion has experienced growth since its reassessment in 2007 although it will be reassessed again in 2010. With the downturn in the overall economy, Skokie has experienced an upward trend in its total foreclosure rate from 2008 to 2010 and such rate exceeds the Chicago metropolitan statistical area (MSA) and nation as of the end of the first quarter 2010. Wealth levels continue to exceed the state averages with median household income at 120% and per capita income at 103% of state levels.

The village has substantial financial flexibility from its diverse sources of revenues and as a result has maintained a property tax levy freeze since 1991. Its primary revenue source is sales taxes, comprising 38% of general fund revenues, and while these revenues were stressed in fiscal 2009, declining 9.8% from fiscal 2008, there has been a positive trend in collections from October 2009 to May 2010. Management has indicated that its other non-property tax revenues, including motel/hotel taxes and real estate transfer fees, are also improving. The village experienced deficit operations in fiscal 2009 due to an aggregate 11.6% reduction in non-property tax revenues. To offset the revenue losses, the village put in place expenditure controls, reduced overtime, and froze vacant positions. The loss in revenues resulted in a $3.1 million draw on reserves reducing the villages' unreserved fund balance to $11.3 million, or a still strong 22.8% of spending. The village has an unreserved fund balance goal of 25% of spending and this above-average balance level is a key credit consideration given the rating level and the village's dependence on sales tax revenues. For fiscal 2010, the village conservatively budgeted revenues and anticipates a small surplus at fiscal year end. The village's fiscal 2011 budget is $460,000 less than the previous year's budget and includes revenues from a newly approved utility tax that became effective on May 1st. The village has estimated that this new tax will bring in an additional $5.6 million in annual revenues and for fiscal 2011 will be used to support general fund operations and funding for pension and self insurance funds.

Skokie's direct debt levels are very low at 0.8% of market value and $1,153 per capita and increase with the addition of overlapping debt to a more moderate level of 3.1% and $4,610. Debt levels are not expected to increase as the village's five-year capital improvement program, totaling $92 million, is anticipated to be funded with available resources, not debt. Outstanding debt amortizes rapidly, with 70% of debt maturing in 10 years. The village manages two pension plans for fire and police and participates in the state's municipal retirement plan. The village managed plans experienced a decline in assets as of April 30, 2009 with funded levels dropping to 61% for the fire plan and 70% for the police plan. According to village officials asset values should show improvement when the fiscal 2010 actuarial report is completed. The village's implicit rate subsidy for OPEB results in a low unfunded actuarial liability of $3.3 million as of April 30, 2008.

Additional information is available at www.fitchratings.com.

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from William Blair & Company, Creditscope, UFA, LoanPerformance, Inc., and IHS Global Insight.

Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 13, 2010;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470

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