NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to the following Romeoville, Illinois (the village) bonds:
--$9.95 million general obligation (GO) refunding bonds series 2014.
Proceeds will be used to refund a portion of the village's GO bonds series 2004. The bonds are scheduled for competitive sale the week of October 13.
In addition, Fitch affirms approximately $91 million of the village's outstanding unlimited tax general obligation (ULTGO) bonds at 'AA-'.
The Rating Outlook is Stable.
The bonds are secured by the village's full faith and credit and its ad valorem tax, without limitation as to rate or amount.
KEY RATING DRIVERS
STRONG FINANCIAL FLEXIBILITY: The village benefits from the demonstrated the ability to implement appropriate spending reductions to maintain solid financial flexibility including solid reserves.
ECONOMICALLY SENSITIVE REVENUE SOURCES: The village maintains considerable revenue-raising capacity conferred by home-rule status; however, operations remain vulnerable to economic contraction due to reliance on economically sensitive revenue sources such as the sales tax.
WEAKER, CONCENTRATED LOCAL ECONOMY: The local and regional economy remains under pressure and unemployment remains higher than the national average. The tax base is highly concentrated and has experienced some recent declines. The village benefits from its proximity to Chicago.
ABOVE-AVERAGE DEBT BURDEN: Overall debt levels are above average and amortization is slow from the village's usage of capital appreciation bonds (CABs), but additional debt plans are minimal. Pension funding levels are mixed, and the village fully funds its annual required contribution (ARC).
REVENUE VOLATILITY: A large change in one of the village's economically sensitive revenue sources could impact the village's credit.
CITGO DEPENDENCE: Though no change is currently anticipated, should Citgo greatly reduce operations in Romeoville, it might cause downward pressure on the rating.
Romeoville is located in Will County (rated 'AA+' by Fitch), approximately 32 miles southwest of downtown Chicago and nine miles north of Joliet.
WEAKER THAN AVERAGE LOCAL ECONOMY
The proximity to three major interstate highways (I-55, I-80, and I-355) has led the village to become a commercial distribution center for the southern Chicago metropolitan area. Top employers include local school districts, government, and industrial entities; however, area unemployment remains elevated. In July 2014 the village recorded 7.3% unemployment, well down from 9.6% a year earlier but higher than the state and national rates of 7% and 6.5%, respectively. The village's population grew almost 90% from 2000 to 2010, primarily from annexation and new development, but growth has slowed in recent years.
EAV gains were strong through 2010 due to the village's suburban expansion and development of its commercial base, but has more recently experienced declines. Fiscal 2012 (fiscal year ending April 30) showed EAV down almost 9%, and it has declined almost 6% per year in each of the last two years. Fitch believes EAV is likely to level off and begin recovery as a number of new commercial and industrial properties recently opened, and housing prices are showing signs of recovery.
The top 10 taxpayers are highly concentrated, paying 23% of the village's total property tax revenues in 2013. The top payer, PDV Midwest Refining (Citgo) accounted for almost 14% of the total. There is currently an appeal related to Citgo's assessed valuation. This is not expected to be settled in the near future, and management has prudently reserved for a potential reduction, with $2 million reserved at the end of fiscal 2013 and a $3.1 million reservation included in unaudited fiscal 2014 results. Management reports that Citgo has made improvements to its facility in recent years and has not had major staffing changes.
STRONG FINANCIAL MANAGEMENT YIELDS SOLID OPERATIONS
General fund revenues are mainly comprised of property, sales, and other taxes. In fiscal 2013, property and sales tax were each 22% of total revenues and the income tax accounted for 9% of total general fund revenues. Sales and income taxes are both subject to economic pressures; however, the village maintains revenue raising flexibility through its home-rule status, and has a history of adjusting tax rates as necessary.
The village's dedication to proactive financial management is evidenced by the performance of the general fund despite the weakened local economy. Fiscal 2013 was the village's third consecutive year with a surplus. The village finished with a $1.4 million net operating surplus (3.6% of expenditures), increasing the unrestricted general fund balance to $16.5 million or a strong 41% of total expenditures. Fiscal 2013 featured a flat property tax levy. A slight decline in sales tax revenue was offset by building permits and engineering fees coming in well over budget as a result of increased construction activity.
Preliminary results for fiscal 2014 show a surplus of almost $1.6 million, outpacing a $1 million budgeted deficit. Sales tax revenues were over 5% below budget, but this shortfall was more than offset by building and inspection permits and engineering fees far exceeding budget. The village also had personnel savings from tight control of vacancies.
The fiscal 2015 budget features balanced operations. Increases were made to the food and beverage and hotel tax rates. Results are currently on budget. Village officials remain dedicated to maintaining the general fund balance at or above their policy goal of 25% of expenditures.
ABOVE-AVERAGE DEBT BURDEN
Overall debt is elevated at $5,477 per capita and 6.6% of full market value; amortization is moderate with 48% of total principal retired within 10 years. The village's debt includes CABs that begin payment in 2021. The village's future borrowing plans are modest.
The village participates in three pension plans, and fully funds the ARC for all three. The police plan is 64% funded. The firefighter's plan, which is the smallest of the three, is well-funded at 99%. All other employees participate in the Illinois Municipal Retirement Fund, which is 75% funded, or an estimated 71% funded using a more conservative 7% investment return assumption. Other post-employment benefits (OPEB) are funded on a pay-go basis and represent a minimal cost burden. Total carrying costs for debt service, pension and OPEB were a manageable 14% of governmental fund expenditures in fiscal 2013 though are expected to increase moderately with growing debt service and pension costs.
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
U.S. Local Government Tax-Supported Rating Criteria