NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following Champaign, Illinois (the city) general obligation (GO) bonds:
--$7.365 million GO refunding bonds series 2013.
The bonds are scheduled to be sold via negotiated sale the week of December 9. Proceeds will be used to refund certain outstanding series 2005 bonds.
In addition, Fitch affirms the city's $75 million outstanding GO bonds at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from ad valorem taxes levied on all taxable property within the city without limitation as to rate or amount.
KEY RATING DRIVERS
UNIVERSITY PROVIDES STABILITY: Champaign's stable economic base is anchored by the presence of the University of Illinois.
DIVERSE REVENUE STREAM: The city's revenue stream is fairly diverse and includes sales, property and income taxes; the city's home-rule taxing authority increases financial flexibility.
STRONG FUND BALANCE: Fund balance levels have been growing and remain healthy, although the city remains dependent on economically sensitive revenues.
SOLID MANAGEMENT: Strong and steady financial management is reflected in conservative budgeting, sophisticated and comprehensive internal policies and active expense management.
IMPROVING PENSION FUNDING: The city is aggressively working to improve the funding levels of its police and fire pension plans.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.
CREDIT PROFILE
Champaign is located in central Illinois, and had a 2010 population of 81,055, up 20% from the 2000 census population. Along with the adjacent city of Urbana, Champaign is home of the University of Illinois' primary campus.
STABLE ECONOMY ANCHORED BY UNIVERSITY
Champaign has grown at an accelerated pace through annexations in tandem with residential investment and cooperative county-wide economic planning efforts with the participation of other local governments, the private sector, a community college, and the university. After five years of growth in the tax base, the city has had two years of small declines in assessed value despite recovery in construction activity. The city does not anticipate additional annexations as recently annexed land is still being built out. There has also been development in areas adjacent to the university campus and in the university's research park.
The unemployment rate of 8.7% as of August 2013 has declined from recent highs. Wealth levels are below average, reflecting the city's large student population. Educational attainment levels are well above state and national norms.
STRONG FINANCIAL MANAGEMENT YIELDS CONSISTENTLY SOLID OPERATIONS
Conservative long-term planning, combined with close monitoring of revenue and expenditure growth, has sustained the city's consistently strong financial performance despite recessionary pressures. Five-year financial forecasts, monthly revenue reports, quarterly financial reports, and budget checks on all significant purchases help guide the city's resource allocation and allow its timely response to challenging economic conditions. The city has actively managed its expenses, including a reduction of 48 positions (8% of the workforce) since fiscal 2009.
Champaign's home rule status gives it considerable flexibility with its revenue streams. Its primary revenue sources are a property tax (18% of general fund revenues), home rule and state sales taxes (a combined 49%) and income tax (12%). In fiscal 2012, the city experienced increases in all three of these sources in the general fund, resulting in a $2.9 million surplus. The surplus increased the unrestricted general fund balance to $21.7 million or a strong 34.2% of expenditures.
For fiscal 2013, the city added a local motor fuel tax and a stormwater utility fee. Neither of these new revenue sources will be accounted for in the general fund, but both should alleviate some spending pressure and thereby increase financial flexibility for the city. Unaudited fiscal 2013 results show a $1.1 million surplus, resulting from close expenditure control and growth across all major revenue categories in the general fund, particularly the income tax. The fiscal 2014 budget features a planned fund balance draw to spend on various projects, with balanced operations expected to return in fiscal 2015. On Jan. 1, 2014, the home rule sales tax will be increased by $0.25 to $1.50, generating an estimated $3 million a year in additional revenue that will be used in part to restore several positions that were previously eliminated.
MANAGEABLE DEBT AND PENSION OBLIGATIONS
Champaign's policy of financing routine maintenance and even large capital projects through operating sources have kept the city's infrastructure well maintained while minimizing its debt burden. The city's overall debt is a moderate $2,577 per capita and 4.7% of market value, with most of this consisting of debt issued by the county and local school districts. The city's debt amortizes rapidly with 74% paid within 10 years.
The city amortizes its outstanding police and fire pension liability through 2020 rather than 2033 as permitted by state law, consistently paying more than the annual required contribution. As of June 30, 2012, the police pension is 71% funded while the fire pension is a strong 80% funded. The city also participates in the Illinois Municipal Retirement Fund, which is well-funded at approximately 75% as of Dec. 31, 2012, assuming a 7% rate of return on investments. The city's exposure to other post-employment benefits (OPEB) is limited, as retirees may remain in the city's plan but are responsible for 100% of their premium. Carrying costs for debt, pensions and OPEB are a low 14% of government fund expenditures.
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:
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=810588
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