NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to the following Romeoville, Illinois (the village) bonds:
--$12.97 million taxable general obligation (GO) bonds, series 2013A;
--$2.255 million GO bonds, series 2013B.
Proceeds will be used to finance the construction of an athletic and events center and for other capital projects. The bonds are scheduled for competitive sale the week of July 8.
In addition, Fitch affirms approximately $103 million of the village's outstanding unlimited tax general obligation (ULTGO) bonds at 'AA-'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by the village's full faith and credit and its ad valorem tax, without limitation as to rate or amount, for payment of the bonds.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: The village benefits from sound financial management that has demonstrated the ability to implement appropriate spending reductions to maintain solid financial flexibility.
HIGH RESERVE LEVELS: Continued maintenance of total general fund balance at or above the village's policy of 25% of expenditures is a credit positive.
ECONOMICALLY SENSITIVE REVENUE SOURCES: The village maintains considerable revenue-raising capacity conferred by home-rule status; however, operations remain vulnerable to economic contraction due to reliance on economically sensitive revenue sources such as sales tax.
WEAKER THAN AVERAGE LOCAL ECONOMY: The local and regional economy remains under pressure and unemployment remains higher than the national average. The tax base is highly concentrated and has experienced some recent declines.
ABOVE-AVERAGE DEBT BURDEN: Overall debt levels are above average and amortization is slow from the village's usage of capital appreciation bonds (CABs), but additional debt plans are minimal.
RATING SENSITIVITIES
REVENUE VOLATILITY: A large change in one of the village's economically sensitive revenue sources could impact the village's credit.
CITGO DEPENDENCE: The village's tax based is highly concentrated, with Citgo Petroleum Corporation (Issuer Default Rating of 'BB-' with a Positive Outlook) constituting almost 13% of equalized assessed value (EAV). Though no change is currently anticipated, should Citgo greatly reduce operations in Romeoville, it would likely cause downward pressure on the rating.
CREDIT PROFILE
Romeoville is located in Will County (rated 'AA+' by Fitch), approximately 32 miles southwest of downtown Chicago and nine miles north of Joliet.
WEAKER THAN AVERAGE LOCAL ECONOMY
The proximity to three major interstate highways (I-55, I-80, and I-355) has led to the village becoming a commercial distribution center for the southern Chicago metropolitan area. Top employers include local school districts, government, and industrial entities; however, area unemployment remains elevated. In April 2013 the village recorded 10.1% unemployment, up notably from 9% a year earlier and higher than the state and national rates of 8.7% and 7.1%, respectively. The village's population grew almost 90% from 2000 to 2010, primarily from annexation and new development, but growth has slowed in recent years.
EAV gains were strong through 2010 due to the village's suburban expansion and development of its commercial base, but the village has more recently experienced declines. Fiscal 2012 (fiscal year ending April 30) showed EAV down almost 9%, followed by a 5.9% decline for fiscal 2013. The village expects EAV to level off and begin recovery as a number of new commercial properties are slated to open soon, including a FedEx distribution center and a new Sam's Club. Sam's Club should also notably benefit the village's sales tax revenues.
The top 10 taxpayers are highly concentrated, paying 23% of the village's total property tax revenues in 2012 and the top payer, PDV Midwest Refining (Citgo) accounted for almost 13% of the total. There is currently an appeal related to Citgo's assessed valuation. This is not expected to settle in the near future, and management has prudently reserved for a potential reduction. Management reports that Citgo has made improvements to its facility in recent years and has not had major staffing changes. Partially offsetting concerns about taxpayer concentration are the strong historical and current property tax collection rates.
STRONG FINANCIAL MANAGEMENT YIELDS SOLID OPERATIONS
General fund revenues mainly comprise property, sales, and other taxes. In fiscal 2012, property tax and sales tax were each 24% of total revenues; other taxes accounted for 20% of total general fund revenues. Sales and income taxes are both subject to economic pressures; however, the village maintains revenue raising flexibility through its home-rule status.
The village's dedication to proactive financial management is evidenced by the performance of the general fund despite the weakened local economy. Fiscal 2011 results included a net operating surplus after transfers of $3.5 million which increased the unreserved general fund balance to $12.9 million or a strong 34% of total expenditures. The positive results in 2011 were augmented by the late distribution of fiscal 2010 income tax money from the state as well as a 23% increase in sales tax revenue as a result of an increase in the home rule sales tax in 2010. In an effort to reach structural balance, the village reduced staff in prior years and continued with reductions in 2011 for a total savings of $1 million along with other general expenditure reductions.
Fiscal 2012 ended with a surplus of $2.1 million in the general fund, giving the village an unrestricted fund balance of $15 million or a high 40% of expenditures. Fiscal 2012 results benefitted from gains in the real estate transfer tax, the sales tax and the income tax, as well as close monitoring of expenditures.
Preliminary results for fiscal 2013 show a surplus of almost $1 million, primarily resulting from fees for services and licenses and permits coming in well ahead of budget. Fiscal 2013 featured a flat property tax levy, as does the fiscal 2014 budget. The fiscal 2014 budget includes a $1 million operating deficit, primarily from a 4.7% increase in expenditures and funds dedicated to the construction of a new fire station. Village officials remain dedicated to building reserves and maintaining the general fund balance at or above their policy goal of 25% of expenditures.
ABOVE-AVERAGE DEBT BURDEN
Overall debt is elevated at $5,328 per capita and 6.4% of full market value; amortization is moderate with 43% of total principal retired within 10 years although this is somewhat distorted by the large capital appreciation bond issue. The village's future borrowing plans are modest.
The village participates in three pension plans. The firefighter's plan, which is the smallest of the three, is well-funded at 94%. The police plan is 65% funded. All other employees participate in the Illinois Municipal Retirement Fund, which is 71% funded, or an estimated 67% funded using a more conservative 7% investment return assumption. Other post-employment benefits (OPEB) are funded on a pay-go basis. Total carrying costs for debt service, pension and OPEB were a manageable 18% of governmental fund expenditures in fiscal 2012 though are expected to increase moderately with growing debt service and pension costs.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=794566
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