Fitch Rates Hinsdale Village, IL's ULTGOs 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned an 'AAA' rating to the following Hinsdale Village, IL (the village) unlimited tax general obligation (ULTGO) bonds:

--$2.07 million general obligation (GO) bonds (waterworks and sewerage system alternate revenue source), series 2014A.

The bonds are expected to sell via competitive sale on March 18, 2014. Proceeds will fund capital improvements to the waterworks and sewerage system including, but not limited to, replacing certain water meters.

In addition, Fitch affirms the following bonds at 'AAA':

--$2.61 million ULTGO library fund tax bonds, series 2006;
--$2.59 million ULTGO waterworks & sewer bonds, series 2008C;
--$1.92 million LTGO bonds, series 2009;
--$4.88 million ULTGO bonds, series 2012A
--$2.66 million ULTGO library fund tax bonds, series 2013A.

The Rating Outlook is Stable.

SECURITY

The 2003, 2008C, 2012A, 2013A, and 2014A series are secured by various village revenues with the ultimate security derived from a pledge of ad valorem taxes without limitation as to rate or amount.

The 2009 bonds are secured by ad valorem taxes without limitation as to rate. The amount of taxes that may be extended to pay the bonds is limited by the property tax extension limitation law.

KEY RATING DRIVERS

RATING REFLECTS ULTGO PLEDGE: Fitch recognizes the availability of additional pledged revenues for this issue; however, the 'AAA' rating is based upon the village's ultimate ULTGO pledge.

LTGO AND ULTGO RATINGS ON PAR: Highest quality ratings for both limited and unlimited tax bonds are supported by the village's superior socioeconomic profile, moderate long-term obligations and favorable financial position. The LTGO and ULTGO ratings are on par, as a result of the village's ample financial flexibility.

AMPLE FINANCIAL FLEXIBILITY: General fund reserves have grown in each of the last five fiscal years as a result of conservative fiscal budgeting and management. These sizable reserve balances, in concert with the village's conservative and proactive approach to fiscal management, afford considerable financial flexibility.

SUPERIOR SOCIOECONOMIC PROFILE: The village is centrally located within the Chicago metropolitan area and has an affluent and highly skilled labor force contributing to a stable local economy. Continued declines in assessed valuation are a result of recording lags from the recession and current development activity is expected to be reflected in future valuations.

WEAK PENSION FUNDING: Pension funding levels are generally below average, but the village has been overfunding two of the three plans to improve their status.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

Hinsdale is a wealthy suburb whose desirable location within the Chicago metropolitan area attracts affluent and highly skilled residents. The census 2010 population was 16,816, having declined slightly from the previous decade.

SUPERIOR SOCIOECONOMIC PROFILE

Per capita income levels are very high at 257% of the state and 271% of national averages and 74% of residents have achieved higher education. Market value per capita is substantial at $277,000.

Unemployment data for the village is unavailable; however, DuPage County reported 6.6% unemployment in December 2013, compared with 6.9% in December 2012, lower than the state rate of 8.6% and on par with the national rate of 6.5% for the same month. The majority of the village is located in DuPage County, with the remainder in Cook County.

AMPLE FINANCIAL FLEXIBILITY

Solid reserves, careful expenditure controls, a diverse revenue stream and the inclusion of significant discretionary expenditure items yield considerable financial flexibility. Conservative budgeting on both the revenue and expenditure sides contributed to general fund operating surpluses (after transfers) in the past five audited fiscal years, culminating in a year-end fiscal 2013 unrestricted general fund balance of $4.9 million or 26.7% of spending.

Fund balance was largely flat in fiscal 2013, after a large transfer out to fund future capital expenses for infrastructure improvements and water and sewer projects not included in the Master Infrastructure Plan. Revenues were slightly above budget as a result of increased sales and income tax revenue. Expenditures were under budget largely due to lower than expected general government and public service expenses.

The village has continued positive financial performance with fiscal 2014 year-to-date financial results indicating a net operating surplus of approximately $580 thousand, or 3.8% of projected expenditures, after an approximate $2.8 million transfer out of the general fund for infrastructure improvements. The village has consistently funded a considerable amount of capital expenditures from cash reserves, a strong indicator of their financial flexibility. Sales tax revenue through January 2014 demonstrated a 6.8% year-over-year increase, compared to 5.7% growth the year before. The expectations for the fiscal 2015 budget include conservative assumptions and balanced operations.

The village's diversified revenue base including property taxes, sales taxes, state income taxes and utility taxes, and beginning in 2011 a voted 1% non-home rule sales tax, has provided stability during the recent economic recession. Taxable valuation declined by 8.2% in fiscal 2013 (levy year 2012). Housing starts and development activity, along with stabilizing home prices, in the village should help stabilize the tax base in the near future.

MODERATE LONG-TERM OBLIGATIONS

Overall debt burden is a moderate 2.4% of full value and a high $6,661 per capita. Principal amortization is fast with 69% of debt scheduled for retirement within 10 years.

The village plans to dedicate about $5 million annually, on a pay-go basis, toward an ongoing 15-year, $87 million infrastructure improvement plan to improve streets and the water and sewer systems, which started in 2009. The majority of the plan is being funded on a pay-go basis, but the village anticipates a $5 million GO borrowing in fiscal 2015.

The village contributes to the Illinois Municipal Retirement Fund (IMRF), a defined benefit agent multiple employer retirement system as well as two defined benefit single employer plans for police and fire sworn personnel. The village has made its full annually required contribution for all three plans. When there are surpluses available at the end of the year, the village aims to fund above the ARC, which it did for the police and fire pensions in fiscal 2013.

The IMRF plan has the weakest funding status of the three plans, with a funded ratio estimated at 52.3% when using a Fitch-adjusted 7% investment return assumption. The fire plan is 59.2% and the police plan is 72.3% funded using a 6.75% investment return assumption. Other post-employment benefits (OPEB) are covered through an implicit rate subsidy. Total carrying costs for debt service, annually required pension payments, and OPEB are a 14.64% of governmental expenditures.

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, Bond Counsel, 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
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=822458
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Contacts

Fitch Ratings
Primary Analyst:
Sheena Gordon, +1-212-908-9115
Associate Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Eric Friedman, +1-212-908-9181
Director
or
Committee Chairperson:
Marcy Block, +1-212-908-0239
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Sheena Gordon, +1-212-908-9115
Associate Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Eric Friedman, +1-212-908-9181
Director
or
Committee Chairperson:
Marcy Block, +1-212-908-0239
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com