Fitch Rates Addison, IL GOs at 'AA+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following Village of Addison, Illinois rating at 'AA+':

--$8.9 million general obligation (GO) refunding bonds, series 2015.

Proceeds will refund a portion of the village's outstanding series 2006C and series 2007 GO bonds. The bonds are expected to sell via negotiation the week of November 16.

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

SOLID FUND BALANCE LEVELS: Historically strong financial margins are substantial. The rating assumes reserves will remain at or near the 25% policy minimum.

STABILIZING VALUES: After several years of substantial declines in equalized assessed value (EAV), levels appear to have stabilized, reflecting some new construction as well as gradual improvement in housing prices.

FAVORABLE LOCATION: The village benefits from its location in the greater Chicago area, near O'Hare Airport, as the significant industrial activity contributes to economic growth and revenue performance.

MODERATE LIABILITY BURDEN: Debt levels are manageable and amortization is rapid. Pension funded ratios are below average.

RATING SENSITIVITIES

The rating is sensitive to the maintenance of strong reserve levels and stable financial 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. The July 2015 unemployment rate of 4.9% is substantially lower than the 6.4% recorded a year prior, and below the 5.9% for the state and 5.6% for the nation.

NOTABLE DECLINES IN EAV SLOW

Real estate prices have declined substantially from their peak in 2006. Growth in EAV averaged over 6% annually from 2004 through 2008; however, EAV 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 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 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 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.

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 preliminary, unaudited results show a $720,000 net operating surplus after transfers, bringing the unrestricted fund balance to 29.5%. 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 operating deficit before transfers. The property tax levy 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 DEBT AND CARRYING COSTS

Aggregate debt levels are moderate at $3,238 per capita and 4.2% of market value. Debt amortizes rapidly, with 88% retired in the next 10 years. The village has limited capital needs and plans to issue $8 million for a new dispatch center in spring 2016.

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 village has regularly made its full IMRF annual required contribution (ARC); the police ARC has been underfunded in the past, but was marginally overfunded in 2014. 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 which Fitch estimates at 75% using a standard 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 sizable 23% of governmental fund spending.

Date of relevant rating committee: May 14, 2015.

Additional information is available at 'www.fitchratings.com'.

Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes 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 by Jan. 20, 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, IHS Global Insight, and Zillow Group.

Applicable Criteria

Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942

Tax-Supported Rating Criteria (pub. 14 Aug 2012)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosures

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993037

Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151028006600/en/

Fitch Ratings
Primary Analyst:
Arlene Bohner, +1-212-908-0554
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Shannon McCue, +1-212-908-0593
Director
or
Committee Chairperson:
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
[email protected]

Source: Fitch Ratings

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