NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following Cook County Community High School District #233 (Homewood-Flossmoor), IL bonds at 'AA+':
--$2.25 million limited tax general obligation (LTGO) school bonds, series 2004.
The Rating Outlook is Stable.
The bonds are general obligations of the district, and all taxable property is subject to the levy of taxes to pay the bonds without limitation as to rate, but limited as to amount.
KEY RATING DRIVERS
AMPLE RESERVES ON A CASH BASIS: A trend of healthy net surpluses in recent years has led to the build-up of ample cash balances, which amounted to more than a year's operating requirements in fiscal 2012. Thorough analysis of ending balances is impaired given the district does not use GAAP accounting.
ABOVE-AVERAGE SOCIOECONOMIC FACTORS: The district serves an affluent suburb of Chicago, whose residents display above-average wealth characteristics.
FAVORABLE DEBT PROFILE: Debt burden is moderate and payout is very rapid. Carrying costs are affordable, as pension costs are paid by the state.
The rating is sensitive to shifts in fundamental credit characteristics including the district's strong reserves and solid economic indicators. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
The Homewood-Flossmoor Community High School District is located in a suburban area approximately 20 miles south of Chicago. The district currently serves 2,850 students and enrollments have declined 4.6% over the past five school years.
The villages of Homewood and Flossmoor together comprise the majority of the district's taxable value (TV), with Homewood accounting for approximately 48% and Flossmoor 34%. The remainder is made up of portions of Glenwood, Chicago Heights, Olympia Fields, and Hazel Crest. Resident wealth levels for the district are above average. Per capita money income for the district is a strong 127% of the state and 133% of the nation.
Although TVdeclined 19% in 2012 as a result of triennial reassessment, reflecting previous declines in real estate values, school district revenues were not directly affected and the property tax levy increased by 3%. Property tax limitations in the state limit the growth in the levy, but not the mill rate. The decline in assessed valuation contributed to a modest $500,000 increase in state aid (equivalent to approximately 1% of spending). The largest taxpayers are largely retail oriented, with the top 10 accounting for a moderate 8% of the tax base.
SOLID FINANCIAL MANAGEMENT WITH STRONG RESERVES
Financial performance for fiscal 2012 resulted in a net operating deficit after transfers of approximately $530,000, or 1% of spending as reflected in the operating funds (education, operations & maintenance, debt service, and transportation). The decline was driven by the district's decision to use $4.6 million for capital expenditures. In the absence of these expenditures, the surplus would have been more in line with the district's performance over the past five fiscal years. The district also experienced an increase in expenditures as a result of settling three-year union contracts, which are in place through 2015.
Fitch views negatively the district's cash-basis of accounting, which hampers meaningful analysis of fund balance. Operating cash balances are high, reaching nearly 80% of spending for operating funds in fiscal 2012. Delays in the timing of state revenues have not affected the district's operations, given the financial flexibility offered by its strong reserve levels, and the timing of remittances from the state has improved.
The working cash fund provides an additional cushion, with cash balances equating to another $13.2 million or 24% of fiscal 2012 operating funds spending. The district is currently levying the maximum allowable amount to fund working cash, which helps maintain reserves at or above the policy level of 10 months of expenditures. The district's reserves currently exceed this level. Management has indicated that the working cash build-up is intended to help the district weather lean years in the future as well as provide funds for moderate pay-go capital needs.
Preliminary results for fiscal 2013 indicate that the district ran a net operating surplus after transfers (education, operations & maintenance, debt service, and transportation funds). Ending reserves were $78.6 million, including $24 million of bond proceeds issued for capital projects, representing 71% of operating expenditures, net of bond proceeds. The fiscal 2014 budget includes a $3 million net operating surplus after transfers. The ending balance for all funds is budgeted at $58.1 million or 116% of expenditures. This reflects expenditure of the entire amount of bond proceeds.
Financial forecasts project narrowing but still positive margins over the next several years. The district recently enacted a plan to reduce expenditures by $400,000 in fiscal 2014 and plan further reductions of $250,000 per year for the next four fiscal years. The district's substantial reserves and the practice of budgeting for pay-go capital provide budgetary flexibility.
MANAGEABLE DEBT AND LONG-TERM LIABILITIES
The district's overall debt burden is moderate at 4.8% of market value, or $2,944 per capita. Amortization is rapid with 90% of principal maturing in the next 10 years. No future borrowing plans have been identified over the next four years, as capital improvement program needs are expected to be met though pay-go funding. Carrying costs are affordable, representing 6.5% of total expenditures, and largely reflect debt service, as the state pays pension and other post-employment benefits (OPEB) costs.
The district's pension liability is limited to its participation in the Teachers' Retirement System, a cost-sharing multi-employer plan, and the Illinois Municipal Retirement Fund (IMRF), an agent multi-employer plan. Funding of the TRS plan is weak, but this concern is mitigated by the fact that the state pays pension costs related to district employees. Fitch believes that, while not currently envisioned, if this arrangement were to end, it could present significant pressure on district finances.
The district has not determined its unfunded liability for OPEB, given the non-GAAP reporting, which Fitch considers to be a credit weakness. Less than 1% of annual spending goes toward the district's OPEB requirements on a pay-as-you-go basis but this figure could be significantly higher on an actuarial basis.
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, National Association of Realtors, and Financial Advisor.
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