TEXT-Fitch affirms Bloomington, Ill. GOs at 'AA+'
Feb 7 - Fitch Ratings has affirmed the following Bloomington, IL (the city) general obligation (GO) bonds at 'AA+': --$9 million GO bonds, series 2003; --$24.9 million taxable GO bonds, series 2004; --$10.5 million demand GO bonds, series 2004; --$7.5 million GO bonds, series 2005; --$9.2 million GO bonds, series 2007; --$5.1 million GO bonds, series 2011. The Rating Outlook is Stable. SECURITY The bonds are a general obligation of the city for which the city has pledged its full faith and credit and unlimited taxing power. KEY RATING DRIVERS STRONG MANAGEMENT: The management team is a positive credit factor, as evidenced by significant cost-cutting to restore structural budgetary balance. Two years of large surpluses have provided the city with heightened financial flexibility. DIVERSE REVENUE STREAM: The city has a diverse stream of operating revenues and the ability to adjust many of these as necessary. STABLE ECONOMY: The local economy benefits from above-average wealth levels, low unemployment and a stable tax base. PENSION CONCERNS: Pension funding levels are very low, with increased funding needs likely creating financial pressures in the future. STATE FARM CONCENTRATION: State Farm Insurance is a major employer and taxpayer in Bloomington, which could present budgetary pressure should there be any future instability at the company. CREDIT PROFILE Bloomington is located 125 miles from Chicago and is the corporate headquarters of State Farm Insurance. The city is adjacent to Normal (GO bonds rated 'AAA' by Fitch). STABLE ECONOMY, GROWING POPULATION The city is part of an economic region that has historically experienced strong population growth and expanding economic activity. As of October 2012, the city's unemployment rate stood at 6.6%, well below the state (8.4%) and nation (7.5%). This rate was down from 7.5% for the same period last year, as a modest increase in employment offset an essentially flat labor force. Between the 2000 and 2010 censuses, the city's population grew 18% and is currently 77,000. The local economy benefits from a mix of insurance, government, higher education and healthcare employers. The largest employers include State Farm Insurance with 14,528 employees, Country Financial Insurance with 2,049 employees and Mitsubishi Motors with 1,270 employees. The employment and tax bases are concentrated in State Farm, which makes up a high 9.5% of the tax base. Fitch notes this concentration is somewhat mitigated by the company's long history in the community. The city also benefits from its proximity to Normal, home of Illinois State University. The tax base has been stable in recent years, with the fiscal 2013 taxable value of $1.7 billion up only 2% since fiscal 2009. DIVERSE REVENUE SOURCES PRODUCE IMPROVED RESULTS After several years of deficits brought fund balance levels down to low levels, a new management team and improvement in the local economy has restored financial flexibility. The city had large surpluses in fiscal 2010 ($6.6 million or 8.7% of expenditures) and fiscal 2011 ($4.9 million or 6.7% or expenditures), bringing its unreserved fund balance to $14.5 million or 19.8% of expenditures. This improvement was achieved both through aggressive cost cutting and growth across the city's various revenue streams. Fiscal 2012 ended with a $767,000 fund balance draw, reducing the city's unrestricted fund balance to $12.6 million or a still sound 14% of expenditures. The deficit was caused by increased expenses for pensions, an early retirement plan and capital improvements. The city is currently projecting that it will finish fiscal 2013 with a $2 million surplus, primarily from growth in its economically sensitive tax revenues. Bloomington maintains a diverse revenue stream, including property taxes, state and local sales taxes, an income tax, and various other taxes; the city has the ability to adjust most of these as necessary. Management is budgeting for balanced operations in fiscal 2014, with a small decrease in the property tax rate. MODERATE DEBT BURDEN Overall debt is somewhat elevated at 4.9% of market value and $3,456 per capita. The majority of the city's overall debt is overlapping debt from local school districts - direct debt is more manageable, and the city has no large debt issues planned. Amortization is moderate with 62% of GO debt retired within 10 years. Barring the issuance of any unplanned debt, direct debt costs will decline noticeably in the next few years. WEAK PENSION FUNDING The city participates in three pension plans, all of which are poorly funded. The Illinois Municipal Retirement Fund (IMRF) is 30.3% funded using Fitch's 7% return assumption, up from 16% two years earlier but still inadequate. The city's police and firemen's pensions are a weak 55.2% and 48.7% funded, respectively. The city has increased funding to the police and fire plans in recent years and is anticipating larger payments to improve funding for IMRF. Fitch views these pension plans as a credit concern for the city and any material deterioration in funding levels could apply negative pressure to the rating. The city funds its other post-employment benefits (OPEB) on a pay-go basis. Total carrying costs for debt, pension and OPEB are a moderate 22.8% of fiscal 2012 governmental expenses. The anticipated decline in debt service costs after fiscal 2014 should help the city offset expected increases in pension payments. 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. 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 and IHS Global Insight. 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 U.S. Local Government Tax-Supported Rating Criteria
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