Fitch Rates Normal, IL's GOs 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AAA' rating to the following Normal, Illinois (the town) bonds:

--$9,455,000 general obligation (GO) bonds, series 2014.

The bonds are expected to price the week of Nov. 17. Proceeds will finance a portion of the cost of the construction of a new fire station and the cost of the town's $5 million contribution to a hotel development.

Additionally, Fitch affirms the following town debt at 'AAA':

--$77 million in outstanding GO bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from 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.

RATING SENSITIVITIES

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.

CREDIT PROFILE

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 20,272 for fall 2014).

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 43% of general fund revenues in fiscal 2014. The town is considering adding or increasing some of its tax rates for fiscal 2016.

Fiscal 2014 (year end March 31) had a $1.2 million deficit, resulting in an unrestricted general fund balance of $25.1 million or a high 45% of general fund spending. Fiscal 2014 performance was largely driven by an 8% increase in income tax revenue offsetting a small decline in sales tax revenues and a $1.7 million increase in transfers out to finance capital improvement projects. The reduction in sales tax revenues was likely caused by a sizable reduction in the number of outside contractors working at State Farm. The deficit in fiscal 2014 came after three straight years of surpluses of about $3.75 million per year.

The town's fiscal 2015 budget features a small surplus. The property tax rate was increased to fund the town's growing pension costs. The sales tax is up 2.75% year to date, and the town is currently expecting to be on budget.

STABLE ECONOMIC PROFILE

The town experienced healthy population growth of 15.6% between 2000 and 2010. The town's August, 2014 unemployment rate of 6.8% is slightly above the state average (6.7%) and the national average (6.3%). Wealth levels are below average, likely limited by the town's large student population.

The town's assessed value (AV) was consistently growing until experiencing small declines the last two years, but is expected to be up 1.3% this year. 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. State Farm's full time work force has remained steady, with no future changes expected. Officials anticipate slightly increasing AV going forward, as building permits and home prices trend upward.

ELEVATED DEBT LEVELS

The town's overall debt is $3,197 per capita and a high 7.1% of market value, underlining the below average market value per capita ($45,000). Amortization is slow at 34% in 10 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 78% (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 by 2040 greater than the state-mandated 90% by 2040 and multiple recent reductions in the assumed rate of return leading to increased contributions. The town consistently makes its actuarially calculated annual 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 1.5% of fiscal 2014 market value. Total carrying costs for the town's pensions, debt and OPEB are a manageable 18% 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

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=919115

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Contacts

Fitch Ratings
Primary Analyst
Eric Friedman
Director
+1-212-908-9181
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Brendan Scher
Analyst
+1-212-908-0686
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Eric Friedman
Director
+1-212-908-9181
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Brendan Scher
Analyst
+1-212-908-0686
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com