Fitch Rates Village of Wheeling, IL's GOs 'AAA'; Outlook Stable.
--$9,915,000 general obligation village hall refunding bonds, series 2012C.
The series 2012C bonds are expected to price in late August.
Series 2012C bonds will advance refund various maturities of the village's outstanding series 2007 bonds. The refunding savings are anticipated at approximately 9% and will be taken evenly across maturities with no extension of maturities.
Additionally, Fitch affirms its 'AAA' rating on the village's outstanding general obligation and sales tax bonds, series 2003A, 2003B, 2004A, 2005, 2011, 2012A, and 2012B.
The Rating Outlook is Stable.
KEY RATING DRIVERS
ROBUST GENERAL FUND BALANCE: The unrestricted general fund balance (sum of committed, assigned, and unassigned under GASB 54) entering fiscal 2012 was equivalent to nearly 52% of spending, translating to significant financial flexibility for the village.
PROACTIVE MANAGEMENT PRACTICES: The village appears to have successfully realigned spending with revenue by reducing spending, increasing ad valorem property taxes, and negotiating labor concessions in order to mitigate sales tax revenue losses.
POSITIVE ECONOMIC PROFILE: The village benefits from its proximity to the Chicago Loop and a sizable business and industrial presence. Unemployment remains below the state and nation.
MODERATE DEBT BURDEN: Wheeling's debt profile benefits from moderate debt ratios and minimal future debt plans. However, combined debt service and pension payments comprise a large part of the village's budget. In addition, a high portion of the debt is synthetically fixed and therefore subject to risks associated with liquidity and swap agreements.
SECURITY The GO bonds and GO water system bonds are secured by a pledge of ad valorem taxes levied against all taxable property within the village without limitation as to rate or amount.
The GO sales tax bonds are additionally payable from sales tax distributions to the village from the state.
STRONG FINANCIAL PROFILE Wheeling's finances are marked by good revenue diversity, a history of high fund balances, conservative budgeting, and multi-year planning.
The village beat its 2011 budget, which included a fund balance draw of $860,000, and added $1.6 million (5.4% of spending) to fund balance. Positive operations resulted in an increase in unrestricted fund balance to $15.1 million or a strong 51.8% of spending, well above the village's formal policy of 25%. Primary drivers of the positive budget variance were the village's conservative budgeting of sales tax, which was up 1.1% for the year, a sharp increase in commercial/industrial building permits, and good cost controls, especially in use of overtime.
The 2012 budget does not increase the village's tax levy and, consistent with prior years, includes a small use of fund balance. Mid-year estimates project a small surplus. Sales tax collections for the first four months of the year are strong, up 4.6% year-on-year and well above the budget's assumption of 3.1% sales tax growth. The sales tax is the leading source of general fund revenue, representing 26% of 2012 budgeted revenues. The year-over-year increase assumes both a 1.25% increase in the existing base and new sales as a result of retailers opening and expanding in the village.
Property taxes are the second largest general fund revenue source, at approximately 24% of budgeted fiscal 2012 revenues. Current village property tax collection rates were below average at 85% in 2009 but have improved to over 97% in 2010 and 2011.
The village has a diverse tax base with top taxpayers comprising 11% of total assessed value (AV). Expenditure increases are largely driven by cost-of-living adjustments for both union and non-union employees as well as general fund support for emergency fire and police dispatching.
SOLID ECONOMIC PROFILE The village of Wheeling is favorably located approximately 25 miles northwest of downtown Chicago. The village benefits from good highway access and is home to a commuter rail station which links residents to Chicago's Loop. Wheeling has a significant commercial presence of its own, with more than 900 establishments located within the village, predominantly engaged in manufacturing and trade.
Management reports that the local housing market is stabilizing, which Fitch believes is consistent with the overall trend in Cook County. The village's AV fell a moderate 9% during its triennial revaluation for the 2010 tax year, the most recent year for which valuation data are available. Some economic development in the village continues, with a number of small commercial and industrial projects currently under development.
Wheeling's unemployment rate of 7.2% in May 2012 compares favorably to state and national rates of 8.4% and 7.9%, respectively. Wealth levels in the village are mixed.
MODERATE DEBT AND SLIGHTLY UNDERFUNDED PENSIONS The village's overall debt burden is moderate to above average at $4,182 per capita and 3.9% of market value. Debt service costs for 2012 are a manageable 6.8% of general fund spending but will escalate to an estimated 14.5% (based on 2012 spending) in later years. The village has two outstanding series of synthetically fixed-rate bonds representing a high 56% of outstanding general obligation debt. Fitch expects debt to remain moderate as the village does not contemplate any further borrowing at present.
The village participates in two single-employer pension plans and the state's defined benefit agent multiple-employer retirement system. The village continues to fully fund the actuarially determined annual pension contribution for all three plans. The aggregate pension contribution consumed 11.9% of the fiscal 2012 budget which, when combined with the village's annual debt service costs and 2.3% of spending for other postemployment benefits, represent 28.7% annual fixed-cost burden. Fitch expects this burden to increase as debt service rises and the village continues on a path to fully funding its pension liability. Each pension plan is slightly underfunded at between 60% and 70% (estimated using Fitch's more conservative 7% discount rate) as of the respective most recent actuarial valuation dates.
The village recently settled labor agreements with both the fire and police unions that include reasonable annual salary increases and health care insurance concessions over 2 years. Fitch believes the terms of the contracts will result in manageable spending increases for the village. Management is in the process of negotiations with recently unionized Department of Public Works personnel.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research: --'Tax-Supported Rating Criteria' (Aug. 15, 2011); --'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research: Tax-Supported Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898 U.S. Local Government Tax-Supported Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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|Date:||Aug 2, 2012|
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