NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to the following Romeoville Village, Illinois (the village) bonds:
--$13.495 million general obligation (GO) refunding bonds series 2016.
Proceeds will be used to refund the GO bonds series 2007B. The bonds are scheduled for competitive sale on March 29.
In addition, Fitch affirms approximately $91.4 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 its strong, home-rule revenue-raising capacity as well as its demonstrated ability to implement appropriate spending reductions when necessary. This flexibility is an important offset to the village's reliance on economically sensitive revenue sources, including sales and income taxes.
CONCENTRATED LOCAL ECONOMY: The local and regional economy has stabilized, both in terms of the tax base and unemployment trends. The tax base benefits from its proximity to Chicago but is highly concentrated.
ABOVE-AVERAGE DEBT BURDEN: Overall debt levels are above average but additional debt plans are minimal. Amortization is average, despite some use of capital appreciation bonds. Pension funding levels are mixed, and the village fully funds or overfunds its annual actuarially-based contributions.
REVENUE VOLATILITY: A large change in one of the village's economically sensitive revenue sources could impact the village's credit.
CITGO DEPENDENCE: A significant reduction in Citgo operations in Romeoville could adversely affect the economy and put 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.
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, industrial entities and a university. In December 2015, the village recorded a 6% unemployment rate, slightly lower than the 6.2% a year earlier. The rate was about the same as the state's rate of 5.9% and higher than the national rate of 4.8%. The village's population grew almost 90% from 2000 to 2010, primarily from annexation and new development, but growth has slowed in recent years.
The tax base stabilized in 2015 after a recessionary decline that resulted in a cumulative 16% drop in equalized assessed valuation (EAV) between 2009 and 2014. The top 10 taxpayers are highly concentrated, paying 25% of the village's total property tax revenues in 2015. The top payer, PDV Midwest Refining (Citgo) accounted for almost 14% of the total. An appeal related to Citgo's EAV has been settled resulting in some reductions to Citgo's EAV, but without the need for a refund. The village had escrowed $4.3 million of related property tax payments in case a refund was necessary but will now release the reserve and apply the funds toward construction of a new fire station.
STRONG FINANCIAL MANAGEMENT YIELDS SOLID OPERATIONS
General fund revenues are mainly comprised of property, sales, and other taxes. In fiscal 2015, property taxes represented 21% and sales, income and other taxes accounted for 53% of 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 has recorded net surpluses after transfers in the general fund for the past five fiscal years. The village finished fiscal 2015 with a $2.7 million net operating surplus (5.4% of expenditures), increasing the unrestricted general fund balance to $20.7 million or a strong 42% of total expenditures.
The village projects ending fiscal 2016 with a general fund net operating surplus of $400 thousand, despite an unbudgeted transfer out of $2.6 million for facility improvements and capital equipment purchases. Concerns about potential delays in state remittance led management to budget conservatively for income tax revenues which are now running $2 million over budget.
The fiscal 2017 budget has not yet been introduced, but management indicates it will be balanced with no appropriation of general fund balance. 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 $5,269 per capita and 6.7% of market value; amortization is moderate with 46% of total principal, including full accreted value of capital appreciation bonds (CABs), retired within 10 years. The CABs begin payment in 2021. Future borrowing plans are modest given the substantial use of paygo for capital.
The village participates in three pension plans, and fully funds the actuarially based contribution for all three. The police and fire plans' GASB 68 ratios of assets to liabilities are 63% and 98%, respectively, as of the April 30, 2015 measurement date. Both plans use a 7% return assumption. All other employees participate in the Illinois Municipal Retirement Fund, a state-managed agent multi-employer plan. The village's portion is 74% funded, as of the Dec. 31, 2014 actuarial valuation date using a 7.5% investment return assumption, or an estimated 70% funded when adjusted by Fitch to reflect a more conservative 7% investment return assumption.
Other post-employment benefits (OPEB) represent a minimal cost burden. The village annually meets or exceeds its annual required contribution (ARC) for OPEB, but has not set up a trust to prefund the liability. The unfunded actuarial accrued liability for OPEB was a manageable $2.4 million in fiscal 2015, representing less than one percent of market value. Total carrying costs for debt service, pension and OPEB were a manageable 20% of governmental fund expenditures in fiscal 2015 though they are expected to increase somewhat with growing debt service and pension costs.
Additional information is available at 'www.fitchratings.com'.
Fitch recently published exposure drafts of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015 and Exposure Draft: Incorporating Enhanced Recovery Prospects into U.S. Local Tax-Supported Ratings, dated Feb. 2, 2016). The drafts include a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published in the first quarter of 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope, Lumesis, IHS, and Zillow Group.
Exposure Draft: Incorporating Enhanced Recovery Prospects into US Local Tax-Supported Ratings (pub. 02 Feb 2016)
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
Dodd-Frank Rating Information Disclosure Form