TEXT-Fitch affirms Skokie, Ill. GOs at 'AAA'
June 29 - Fitch Ratings has affirmed the following village of Skokie, Illinois (the village) outstanding general obligation (GO) bonds at 'AAA': --$59.1 million GO bonds. The Rating Outlook is Stable. SECURITY The bonds are a general obligation of the village backed by its full faith and credit and unlimited taxing power. KEY RATING DRIVERS AFFLUENT CHICAGO SUBURB: Proximity to Chicago and an expanding transportation network attracts a professional work force with above-average wealth levels. MULTIPLE REVENUE SOURCES: Skokie benefits from its diverse revenue sources providing superior financial flexibility. SALES TAX REVENUE INCREASES: After several years of declines, the economically sensitive sales tax has experienced recent growth. FUND BALANCE, CASH DECLINES: The village's fund balance level and cash position have had material declines in recent years. WHAT COULD TRIGGER A RATING ACTION? FAILURE TO RESTORE CASH: Failure by the village to improve its weakened cash position could result in downward rating pressure. CREDIT PROFILE UPPER MIDDLE CLASS CHICAGO SUBURB ANCHORED BY SUCCESSFUL MALL Skokie is located in Cook County, 16 miles northwest of downtown Chicago. Its population is 64,784, which is up 2.3% from 2000. The village has a diverse economic base led by three large shopping centers, including the Old Orchard Shopping Center, and various commercial and industrial areas. Management reports that the Old Orchard Shopping Center is 97% occupied and generated $500 million in retail sales in 2011. A new train station (Skokie Swift) recently opened which will enhance commuters' access to Skokie's downtown and the Illinois Science and Technology Park, helping to promote redevelopment and business relocation. The village is also expecting to benefit from the opening of a Super Wal-Mart in late 2013. These developments should help offset recent declines in assessed value. The village's unemployment rate is a low 7% as of March 2012, well below the state and national rates of 9% and 8.4%, respectively. A number of residents commute into Chicago and other nearby suburbs. Wealth levels continue to be high with the median household income at 120% of the state level and 128% of the national average. DIVERSE REVENUE SOURCES LED BY GROWING SALES TAX The village has substantial financial flexibility from its diverse sources of revenues and as a result has maintained a property tax levy freeze since 1991. Its primary revenue source is sales taxes, comprising 37% of general fund revenues. After several years of declines, sales tax revenues were up 7.2% in fiscal year (FY) 2011 and 2.5% in unaudited FY 2012 results. The village also experienced a 6.6% increase in income tax revenues in FY 2012. Management also implemented a utility tax in FY 2011 that yielded $4.1 million to the general fund ($1.7 million for operations and $2.4 millions for fire and police pensions) and a total of $5.5 million across all funds. Utility tax revenue was down 6.6% in FY 2012 due to an unseasonably warm winter. As a home rule municipality, the village will consider a number of other taxes if necessary. The village actively manages expenses, including maintaining a hiring freeze since late 2008. The village's cash position has declined noticeably in recent years. While the village has had sufficient funds to date to avoid cash flow borrowing, Fitch is concerned that a continued weakened cash position would result in credit quality deterioration. Overall, in FY 2011 the village had a net operating deficit after transfers of $1.3 million (2.5% of spending). Unreserved fund balance declined to $7.5 million or 14.3% of expenditures. Historically, the village has maintained an unreserved fund balance close to its goal of 25%. As a result of the growth in sales and income tax revenues, management projects a surplus of between $250,000 and $500,000 for FY 2012. The budget for FY 2013 is balanced, with a 1.8% increase in general fund expenditures. Due to the village's reliance on the economically sensitive sales tax, Fitch expects the village to restore its fund balance back towards its goal level. MANAGEABLE DEBT AND PENSION BURDENS Skokie's direct debt levels are low but increase with the addition of overlapping debt to a more moderate level of 3.3% of full value and $4,441 per capita. The village plans to issue additional debt later this year but it should not significantly impact debt levels. Outstanding debt amortizes rapidly, with 76% of debt maturing in 10 years. Debt service makes up a somewhat elevated 14.4% of expenditures. The village manages pension plans for fire and police and participates in the state's municipal retirement plan. Using Fitch's assumed 7% rate of return, the fire plan is funded at a weak 58.5% while the police and state plans are at a stronger 74.6% and 77.5%, respectively. Total pension payments are 11.5% of expenditures. The village's implicit rate subsidy for other post-employment benefits (OPEB) results in a low unfunded actuarial liability of $5.7 million as of April 30, 2011. 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. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Tax-Supported Rating Criteria' (Aug. 15, 2011); --'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011). Applicable Criteria and Related Research: Tax-Supported Rating Criteria U.S. Local Government Tax-Supported Rating Criteria
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