NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns a 'AAA' rating to the following Normal, Illinois (the town) bonds:
--$9,500,000 general obligation (GO) refunding bonds, series 2013.
The bonds are expected to price the week of September 2. Proceeds will advance refund various maturities of the town's outstanding series 2005 bonds.
Additionally, Fitch affirms the following town debt at 'AAA':
--$88 million in outstanding GO bonds.
The Rating Outlook is Stable.
The bonds are secured by the town's full faith and credit and unlimited ad valorem taxing authority.
KEY RATING DRIVERS
STRONG FINANCIAL PERFORMANCE & FLEXIBILITY: The town's financial profile is marked by a history of stable operating margins, conservative multi-year planning, and considerable fund balances. The town's home-rule status provides revenue-raising flexibility.
STABLE ECONOMY: The town's economy is stable, showing growth through the recent recession and anchored by the insurance and higher education sectors.
PENSION AND DEBT PRESSURES: Debt levels are somewhat elevated with slow amortization. Pensions are somewhat underfunded although the town consistently pays its actuarially required contributions.
PENSION FUNDING; DEBT BURDEN: An increase in long-term liabilities, including a weakening of pension funding levels or sizable additional debt issuances, could result in downward rating pressure.
Normal is located in central Illinois, approximately 130 miles from Chicago. The local economy is anchored by State Farm Insurance, which is headquartered in neighboring Bloomington, and four universities, the largest being Illinois State University (with a student population estimated at 21,080 for fall 2012).
CONSERVATIVE MANAGEMENT; STRONG FINANCIAL FLEXIBILITY
The town's long-term and conservative financial planning practices as well as the revenue flexibility conferred by its home-rule status have resulted in consistently high fund balance levels. The town has a high degree of revenue diversity, somewhat offsetting concerns about the economic sensitivity of the town's primary revenue sources -- local and state sales taxes and state shared income taxes. These sources combined represent 42% of general fund revenues in fiscal 2012.
Fiscal 2012 (year end March 31) resulted in an unrestricted general fund balance of $22.7 million or a high 47% of general fund spending. Fiscal 2012 performance was largely driven by conservative budgeting, strong sales and income tax performance, and cost savings in seasonal expenditures and public safety. The result was $3.7 million (7.5% of spending) added to an already healthy fund balance.
The town's 2013 budget was balanced and increased expenditures 5.8% year-over-year ($2.3 million); this increase was driven largely by salary and benefit changes. Unaudited fiscal 2013 results show a $3.7 million surplus, increasing the town's unrestricted fund balance to $26.4 million or 51.6% of general fund spending. The surplus was a result of payroll savings, 11% growth in income tax revenues and 4.8% growth in sales tax revenues.
Fiscal 2014 was budgeted to have a $114,000 surplus and thus far is ahead of budget. The sales and income taxes are current over budget. The town's total property tax levy was held flat, with a decrease in the general fund property tax levy offsetting an increase in taxes for pension costs.
STABLE ECONOMIC PROFILE
The town experienced healthy population growth of 15.6% between 2000 and 2010. The town's June, 2013 unemployment rate of 8.1% is below the state average (9.8%) but above the national average (7.8%). Wealth levels are below average, likely limited by the town's large student population.
The town's assessed value was consistently growing until this year, when it declined 1.1%. Mitsubishi invested $45 million in its plant for the highly successful Outlander, and expects continued increases in production. The completion of the town's development of Uptown Station, highlighted by a new multi-modal transportation center, has spurred business growth as well. Officials anticipate flat to slightly increasing AV going forward, as building permits and home prices trend upward.
ELEVATED DEBT LEVELS
The town's overall debt is $3,241 per capita and a high 7.1% of market value, underlining the below average market value per capita ($46,000). Amortization is slow at 34% in ten years. Additional debt plans are manageable.
The town offers three pension plans to employees. The town participates in the Illinois Municipal Retirement Fund (IMRF), which is moderately funded at an estimated 76% (based on a Fitch-adjusted 7% rate of return assumption). The town also has single-employer police and fire pensions, both of which are more poorly funded at between 60% and 65% based on a 7% rate of return. The town has taken steps to improve funding for the police and fire plans, with a 100% target funding level greater than the state-mandated 90% and multiple recent reductions in the assumed rate of return leading to increased contributions. The town consistently makes its annually required contribution for all plans.
The town's other post-employment benefits (OPEB) liability is limited to an implicit rate subsidy. The plan's unfunded actuarially accrued liability was a moderate 1.1% of fiscal 2013 market value. Total carrying costs for the town's pensions, debt and OPEB are a manageable 17.5% of government fund expenditures, although these costs are expected to increase as the town improves pension funding.
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, and IHS Global Insight.
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
U.S. Local Government Tax-Supported Rating Criteria