Fitch Affirms Hinsdale Village, IL's GOs at 'AAA'; Outlook Stable
Fitch Ratings has affirmed the 'AAA' rating on the following Hinsdale Village, IL (the village) bonds:
--$2.2 million unlimited tax general obligations (ULTGO) bonds (water & sewerage system alternate revenue source), series 2008C;
--$1.8 million limited tax (LT) GO refunding bonds, series 2009;
--$4.6 million ULTGO bonds (alternate revenue source), series 2012A;
--$2.6 million ULTGO refunding bonds (library fund tax alternate revenue source), series 2013A;
--$2 million ULTGO bonds (waterworks and sewerage system alternate revenue source), series 2014A;
--$5 million ULTGO bonds (alternate revenue source), series 2014B.
The Rating Outlook is Stable.
The ULTGO bonds are secured by various village revenues with the ultimate security derived from a pledge of ad valorem taxes without limitation as to rate or amount.
The LTGO bonds are payable from ad valorem taxes without limitation as to rate. The amount of taxes that may be extended to pay the bonds is limited by the property tax extension limitation law.
KEY RATING DRIVERS
AMPLE FINANCIAL FLEXIBILITY: Sizable reserve balances, in concert with the village's conservative and proactive approach to fiscal management, afford considerable financial flexibility. The LTGO and ULTGO ratings are on par, as a result of the village's ample financial flexibility.
SUPERIOR SOCIOECONOMIC PROFILE: The village is centrally located within the Chicago metropolitan area and has an affluent and highly skilled labor force contributing to a stable local economy. Equalized assessed valuation (EAV) declined a cumulative 23% between 2009 and 2014, but 2015 data show signs of stabilization.
MODERATE LONG-TERM OBLIGATIONS: Debt burden and carrying costs are low and no additional debt is planned. Pension funding levels are generally below average, but the village has been paying more than the required amount for two of the three plans in order to improve their status.
The rating is sensitive to shifts in fundamental credit characteristics, including the village's ability to maintain financial flexibility, adequate reserves and a moderate long-term liability profile.
Hinsdale is a wealthy suburb whose desirable location within the Chicago metropolitan area attracts affluent and highly skilled residents. The majority of the village is located in DuPage County, with the remainder in Cook County. The 2010 census population was 16,816, a slight decline from the previous decade.
SUPERIOR SOCIOECONOMIC PROFILE
Median household income levels are very high at 285% of the state, and 76% of residents have achieved a bachelor's degree, about 2 1/2x the state average. Market value per capita is substantial at $263,000.
DuPage County reported 4.5% unemployment in December 2015, virtually unchanged from the 4.4% recorded a year prior. The December rate compared favorably with the state rate of 5.9% and was slightly below the national rate of 4.8% for the same month.
AMPLE FINANCIAL FLEXIBILITY
Solid reserves, a diverse revenue stream, careful expenditure controls, and the budgeting of significant discretionary expenditure items yield considerable financial flexibility. Conservative budgeting on both the revenue and expenditure sides contributed to balanced or surplus general fund operations (after transfers) in the past five audited fiscal years, culminating in a year-end fiscal 2015 unrestricted general fund balance of $5.3 million or 26.5% of spending.
The village recorded break-even operations in fiscal 2015 with a $47,000 net operating surplus after transfers (consisting of $1.5 million to the infrastructure fund). The village continued its recent practice of overfunding its annual pension requirement, making 106% of the required amount. The village has consistently funded a considerable amount of capital expenditures from cash reserves, a strong indicator of their financial flexibility.
Fiscal 2016 sales tax revenue is showing a year-over-year decline of 1.6%, but is still ahead of the budgeted 3% decline. The dropoff is attributable to a 15%-20% decline in gasoline tax receipts, offset by an 18% increase in use taxes. The fiscal 2016 budget included conservative assumptions and balanced operations. Current estimates project a small addition to general fund balance at year-end.
The village's diversified revenue base, including property taxes, sales taxes, state income taxes and utility taxes, and, beginning in 2011 a voted 1% non-home-rule sales tax, has provided stability during the recent economic recession. Property taxes are the largest revenue source at 32% of revenues. Taxable valuation declined by 3.3% in fiscal 2014 (levy year 2013) before stabilizing in fiscal 2015 (levy year 2014). Strong building permit data, along with stabilizing home prices, suggest continued stabilization of the tax base in the near future.
MODERATE LONG-TERM OBLIGATIONS
Overall debt burden is a moderate 2.2% of full value but a high $6,101 per capita, reflecting the wealthy tax base. Principal amortization is above average with 64% of debt scheduled for retirement within 10 years.
The village plans to dedicate at least $5 million annually, on a pay-go basis, toward an ongoing 15-year, $87 million infrastructure improvement plan started in 2009 to improve streets and the water and sewer systems. No additional debt is planned.
The village contributes to the Illinois Municipal Retirement Fund (IMRF), a defined benefit agent multiple employer retirement system, as well as two defined benefit single employer plans for police and fire sworn personnel. The village consistently makes at least its full required payment for all three plans. When surpluses are available at the end of the year the goal is to fund above the required amount, which the village did for the police and fire pensions in fiscal years 2012-2015.
None of the three plans is well-funded. On a combined basis, the plans' ratio of assets to liabilities is roughly 65%, on both a reported basis and when adjusted by Fitch to reflect a 7% investment rate of return. Other post-employment benefits (OPEB) are limited to an implicit rate subsidy. Total carrying costs for fiscal 2015 debt service, annually required pension payments, and OPEB were a manageable 13% of governmental expenditures, or a slightly higher 13.5% when including the village's extra pension contributions.
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, IHS, Lumesis, 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
Fitch Ratings, Inc.
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