Fitch Affirms Yorkville, IL’s ULTGOs at ‘A+’ & Debt Certificates at ‘A’; Outlook Stable
By Business Wire News
Fitch Ratings has affirmed the following Yorkville, IL (the city) unlimited tax general obligation (ULTGO) bonds and debt certificates:
–$7.080 million ULTGO bonds at ‘A+’;
–$4.165 million debt certificates at ‘A’.
The Rating Outlook is Stable.
The ULTGO bonds are payable from ad valorem taxes levied against all taxable property without limitation as to rate or amount.
The debt certificates are payable from any legally available funds, not subject to annual appropriation.
KEY RATING DRIVERS
CONTINUED IMPROVED FINANCES: The city has actively strengthened its financial profile by eliminating non-major fund deficit positions. In doing so, the city temporarily reversed net operating surplus trends but reserve levels are healthy and positive results are expected in fiscal 2015.
STABLE ECONOMY; DECLINING ASSESSED VALUE: The local economy is stable, with continued employment growth, unemployment on par with the national average, but below the state rate, and above average city income and wealth indicators. Taxable assessed value (TAV) has seen declines in recent years, with declines projected to stabilize in the near term.
MIXED LIABILITY PROFILE: The city’s debt burden is above average, though amortization is rapid and there are no plans for future debt issuance in the near term. Combined debt service, pension, and other post-employment (OPEB) costs are moderate relative to spending. The police pension funded level is low, but the unfunded liability is relatively low compared to the city’s market value. Fitch expects the city will continue to fully fund the actuarial pension payment, despite a recent history of underfunding the obligation.
OPERATING STABILITY: The city’s ability to maintain a healthy financial cushion, while addressing its operating and capital needs, is key to rating stability. The rating further reflects Fitch’s expectation of continued full funding of the actuarial pension payment.
Yorkville is located approximately 20 miles from Naperville and 50 miles from Chicago. The city’s rapid expansion over the past decade increased population to about 17,742 in 2013, a 187% increase over 2000, though growth in recent years has slowed.
HEALTHY RESERVE POSITION
Following three years of general fund net operating surpluses after transfers, fiscal year 2014 (year-end April 30) ended with a deficit of $363,000 or a moderate 2.6% of spending. The resulting unrestricted fund balance, $3.7 million or a healthy 27% of spending, continues to exceed both internal policies (15 – 25% of spending) and budgeted projections.
The fiscal year 2014 operating deficit was driven by onetime transfers out to the municipal building and recreation funds for the elimination of deficit positions and closeout of the funds.
Unaudited financial statements for fiscal year 2015 indicate general fund revenues are expected to increase by approximately 4% driven by good property and sales tax performance. Expenditures are expected to remain flat (-1% decline). The general fund is expected to recoup the prior year drawdown, and end the fiscal year with an unrestricted balance of $4.1 million or about 30% of expenditures. Fitch anticipates fairly stable financial results in the near term. The city began multi-year budgeting as of fiscal year 2012, and projections show the general fund ending balance at a minimum of about 17% of spending for fiscal years 2016 through 2018. Fitch believes the forecast is operationally balanced and expects any near term drawdowns on fund balance to be used for one-time capital expenditures.
STABLE ECONOMY/DECLINING ASSESSED VALUE
Raging Waves, a seasonal water park and Wrigley Manufacturing are the city’s top employers, with the remaining top 10 chiefly in the retail sector. Employment data for the city is unavailable, but Kendall County employment has seen annual growth in recent years. Kendall County unemployment (5.2% as of May 2015) was below the state level (5.6%) and the national rate (5.3%).
The city’s taxable assessed values (TAV) declined approximately 5% for fiscal year 2014, continuing a downward trend since fiscal year 2011. With assessments reflecting a three year rolling average, the city expects continued negative performance in the near term. However, 2015 TAV estimates show signs of stabilization with declines remaining flat at -0.8%. The city reports increased commercial activity, with vacancy rates declining, the development of land surrounding a new movie theatre complex, and increased investment in the Wrigley manufacturing facility. Tax base concentration is low with the top taxpayer (Menard, Inc. a home improvement store) at 1.8% of TAV and the top 10 taxpayers at 8.5% of TAV. Total property tax collections are strong, averaging 99% over the last three years.
MIXED DEBT AND PENSION PICTURE
The city’s debt burden is high at $5,422 per capita and 7.6% of market value reflecting significant overlapping debt, but city debt amortization is rapid, with 80% of outstanding principal retired within 10 years. The city does not have plans to issue new debt which somewhat tempers the high debt burden.
The city provides pensions benefits through two defined benefit plans, the Illinois Municipal Retirement Fund (IMRF), the state administered cost-sharing multiple employer plan, and the police pension plan. The IMRF was 89% funded as of the December 31, 2013 valuation or about 84% using Fitch’s estimate assuming a 7% rate of return. The police pension plan was 43% funded as of the April 30, 2013 valuation or 41% using an assumed 7% rate of return. While the funded position is low, the unfunded actuarial accrued liability of $6.7 million is also a low 0.5% of MV.
In 2014 the city exceeded the full actuarially required contribution (ARC) payment, contributing 101%. While this is the first year the city has paid in excess of the ARC in the past five years, the percentage paid has been increasing as the city is actively working to decrease their unfunded actuarially accrued liability by 1 – 3% annually. Other post-employment benefits are modest and are funded on a pay-go basis. Total carrying costs inclusive of pension ARC, OPEB payment, and debt service costs are manageable as a percentage of government spending at approximately 14%.
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, and National Association of Realtors.
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
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