NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'AA+' rating on approximately $25 million of the Village of Addison, IL (the Village) general obligation (GO) bonds.
The Rating Outlook is Stable.
SECURITY
The bonds are backed by the village's full faith and credit and its ad valorem tax pledge, without limitation as to rate or amount.
KEY RATING DRIVERS
HIGH FUND BALANCE LEVELS: Historically strong financial margins have declined in recent years, but are still substantial. The rating assumes reserves will stabilize at or near the 25% policy minimum, which they currently slightly exceed.
STABILIZING VALUES: After several years of substantial declines in equalized assessed value (EAV), levels appear to have stabilized, reflecting gradual improvement in housing prices.
FAVORABLE LOCATION: The village benefits from its location in the greater Chicago area, near O'Hare Airport, as reflected by significant industrial activity benefiting economic activity and revenue performance.
MODERATE LIABILITY BURDEN: Debt levels are manageable and amortization is rapid. Pension funding levels are below average.
EXPERIENCED LEADERSHIP: Seasoned fiscal stewardship with a history of prudent financial management and demonstrated willingness to increase tax rates when necessary guides the village.
RATING SENSITIVITIES
The rating is sensitive to the maintenance of strong reserve levels and stable operations.
CREDIT PROFILE
Addison is located 14 miles southwest of O'Hare Airport and 25 miles west of Chicago, and proximate to several interstates.
WELL-LOCATED VILLAGE OUTSIDE CHICAGO
The village's tax base is composed of 60% residential property, 31% industrial property and 9% commercial property, and is home to the fourth largest industrial park in Illinois. Taxpayer concentration is low. The village's two largest employers are a United Parcel Service distribution center and the headquarters of Pampered Chef. Unemployment levels are elevated at 7.2% as of February 2015, versus 6.5% for the state and 5.8% for the nation, but well down from past highs.
NOTABLE EAV DECLINES SLOW
Real estate prices have declined substantially from their peak in 2006. Growth in EAV averaged over 6% annually from 2004 through 2008; however, they decreased at least 6.9% per year from 2010-2013. The most recent 2014 EAV decline was a much smaller 0.8%. Recent residential and commercial development and growth in home prices based on home price information from Zillow Group should help stabilize EAV. The village has done selective annexation in the past and there are several new residential construction projects upcoming that should also enhance EAV.
HIGH FUND BALANCE DRIVEN BY DIVERSE REVENUE & PRUDENT MANAGEMENT
The village generates revenues from a variety of sources, including several from economically sensitive taxes. Sales tax revenues accounted for 30% of total general fund revenues in fiscal 2014 (ended April 30), followed by property tax (22%) and income tax (13%). Given its home rule status, the village has complete autonomy to adjust its tax rates and implement new taxes, and has made several adjustments in recent years. The village has expressed a willingness to make further changes if necessary, particularly if the maintenance of its 25% fund balance policy was in jeopardy. The recent completion of a dispatch center and the addition of several neighboring communities as customers of the center have further diversified revenues.
Despite three consecutive years of spending deficits the village finished fiscal 2014 with a still sizable 28% unrestricted general fund balance. Fiscal 2014 ended with a $258,000 operating deficit after transfers (1% of expenditures). Year-end results were influenced by an almost 10% increase in sales tax revenues, offset by a $1.4 million increase in personnel services largely driven by the payout of sick and vacation days for those who participated in an early retirement program.
For fiscal 2015 the village budgeted a $271,000 deficit but expects to finish with a $937,000 surplus, bringing the unrestricted fund balance to almost 31%. The surplus was generated by a 5% increase in sales tax revenues as several new stores opened and a large construction project was completed on a major commercial road.
The fiscal 2016 budget includes a $125,000 deficit. The property tax was increased 10%, largely to fund increased pension costs, and three new employees will be added to the dispatch center to coincide with the addition of several new customers.
MANAGEABLE CARRYING COSTS
Aggregate debt levels are moderate at $2,624 per capita and 3.4% of market value with 74% of the total burden attributable to overlapping school debt. Debt amortizes rapidly, with 86% retired in the next 10 years, and the village has limited capital needs and no additional debt planned.
The village participates in two pension systems: a single-employer plan for police and the Illinois Municipal Retirement Fund (IMRF) for all other employees. As of April 30, 2014, the police pension plan, which uses a 7% discount rate assumption, was only 61% funded. The unfunded actuarial accrued liability for the police plan is manageable, at $24.7 million or 0.8% of market value. As of Dec. 31, 2013, IMRF was 79% funded; 75% using Fitch's 7% discount rate assumption. Exposure to other post-employment benefits (OPEB) is limited, determined based on an implicit rate subsidy for retirees. The village's carrying costs for debt, pensions and OPEB are a moderate 23% of government fund spending.
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=984718
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