NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'AA-' rating on the following Minooka Community High School District bonds:
--$8.6 million unlimited general obligation bonds, series 2008.
The Rating Outlook is Stable.
SECURITY
The bonds are general obligations, secured by the district's full faith and credit and unlimited taxing authority.
KEY RATING DRIVERS
CONTRACTED TAX BASE; SUBSTANTIAL CUSHION: Declines in assessed valuation persist, limiting the district's ability to grow its revenue base and structurally cover spending growth. Positively, the district has a substantial financial cushion and liquidity position.
MANUFACTURING CONCENTRATION; ABOVE AVERAGE ECONOMIC INDICATORS: The tax base is concentrated in manufacturing, mitigated somewhat by industry diversification. Median household income exceeds the state and national averages and the poverty rate is extremely low even in the face of above average area unemployment.
MANAGEABLE DEBT BURDEN: Overall debt is high on a per capita basis but a relatively affordable budget item. The district's exposure to pension and OPEB liabilities is currently limited.
RATING SENSITIVITIES
DECLINES IN FINANCIAL PERFORMANCE: The key credit strength is the district's ability to maintain strong reserve levels during a period of property tax revenue contraction. Material deterioration in financial flexibility would cause negative pressure on the rating.
CREDIT PROFILE
The district, part of the Chicago metropolitan statistical area (MSA), is located about 65 miles southwest of the city in a fast-growing area where Interstates 80 and 55 intersect. Enrollment for the 2012/2013 school year is estimated at 2,607, representing 2% compound average annual growth over the last five years.
SOLID ECONOMIC PROFILE
The district has experienced healthy population and student enrollment growth. Portions of the district are located in Grundy, Kendall and Will Counties with the district serving approximately 25,500 residents in the Villages of Minooka, Channahon and Shorewood as well as a small portion of the city of Joliet. Reflecting the relatively prosperous area, the Village of Minooka and Grundy County have above-average median household income equal to 150% and 114% of the state average, respectively.
ECONOMY DRIVEN BY INDUSTRY & HEALTHCARE
The tax base is concentrated with the top ten taxpayers accounting for a high 22.17% of equalized assessed valuation (EAV); half are industrial facilities. A significant healthcare sector provides stability to the economy and the largest area employer is Provena St. Joseph Medical Center with 2,430 employees. Other large employers include Caterpillar Inc. (2,000), Empress Joliet (riverboat casino; 2000 employees) and Silver Cross Hospital (1,908). A new Grainger facility constructed in the district will add over 300 jobs.
Unemployment rates for Grundy County have historically been above state and national levels, reflecting vulnerability to the industrial component of the economy. For April 2013 the county recorded an unemployment rate of 11.8%, above the respective state and national rates of 9.3% and 7.5%. Kendall and Will counties recorded unemployment rates of 8.9% and 9.7% for the same period, more in line with the state and national rates.
SUSTAINED DECLINES IN ASSESSED VALUATION
The district maintains some budget volatility exposure with its major revenue stream (property taxes). EAV projections for budgeting purposes are based on estimates from the counties and have varied significantly from actual performance over recent years. Fiscal 2013 EAV declined 7.8%, versus an original expectation of 2% and a subsequent budget adjustment to 5%. Losses continued in fiscal 2014, down 6.3% (off from 6% budgeted) and Fitch views the district's fiscal 2015 projected 2% loss as optimistic given recent performance. Fitch remains concerned about both the seemingly sluggish housing recovery, especially in light of broader economic improvements and budget exposure with its major revenue source.
The district has a large industrial commercial base with a significant number of properties in abatement as a result of economic development activity. The declines in assessed valuation could be mitigated as these abatements expire. New construction in the district continues, though modest. District management favorably settled a series of disputes with a few of its largest taxpayers concerning the assessed value of certain facilities for tax purposes. Total tax collections are strong at 99%.
STRONG RESERVES, CASH MANAGEMENT, KEY STRENGTH
The district's use of cash-basis accounting, which is allowable under state law, somewhat limits the transparency of the district's financial position. However, cash balances are significant. For fiscal 2012, the ending fund balance totaled $21.7 million or a high 58.7% of operating funds spending (operating funds include education, operations and maintenance, transportation, working cash and tort immunity funds). Preliminary estimates for fiscal 2013 show a $700 thousand operating deficit, with cash balances remaining strong at 59% of spending.
Property taxes represent the largest share of operating revenues at 77.2% in fiscal 2012. The district receives property tax distributions beginning in May through December. These multiple disbursements of property tax receipts and a dedicated working cash levy eliminate the need for cash flow borrowing. As of the close of fiscal 2012, the working cash fund balance totaled $2.9 million and is expected to increase slightly to a solid $3.0 million at the close of fiscal 2013.
State aid is the second largest revenue source and accounts for 22% of operating revenues, including the pension subsidy. The district has fallen to the foundation level funding formula, due to declines in assessed valuation, and will receive increased state aid revenues as a result. The district expects fiscal 2013 revenues to be below budget, as a result of delayed state aid payments. Despite these delays in funding, the district has not experienced reduced liquidity.
Year-to-date performance shows the district spending 73% of budgeted amounts, compared with 75% at the same point in fiscal 2012, leading management to believe expenditures will be under budget. Management expects fiscal 2014 to be largely in line with fiscal 2013, based on preliminary budget information, with decreased spending on supplies and minor capital projects being postponed. Fitch believes actual performance could show a negative variance given Fitch's concern over AV losses and the impact on revenues. However, the district's very high reserves provide sufficient cushion over the near term to absorb additional minor budget variations.
MANAGEABLE DEBT BURDEN
The district's overall debt ratios are relatively high at $5,678 per capita and 6.1% of market value. There are no plans for additional debt in the immediate future.
The district participates in two state pension plans. The Teachers' Retirement System is severely underfunded at 44.1% using an 8.5% discount rate, versus an estimated 39.9% using Fitch's more conservative 7% discount rate. Funding for the Illinois Municipal Retirement Fund is sufficient at 83% using a 7.5% discount rate compared with an estimated 78.7% on a Fitch adjusted basis. The district receives funding from the state to make its annual required contributions. Fitch believes that, while not currently envisioned, if this arrangement were to end, it could present significant pressure on district finances. Exposure to other post-employment benefits (OPEB) is limited as it consists of an implicit rate subsidy for retirees, which Fitch views favorably.
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, National Association of Realtors, and Financial Advisor.
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
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=793281
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