Fitch affirms Cook Cty Community High School Dist, Ill. at 'AA+'

Mon Sep 9, 2013 5:14pm EDT

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Sept 9 - (The following statement was released by the rating agency)
    
    NEW YORK, September 09 (Fitch) Fitch Ratings has affirmed the following Cook
County Community High School District #233 (Homewood-Flossmoor), IL bonds at 
'AA+':

--$2.25 million limited tax general obligation (LTGO) school bonds, series 2004.

The Rating Outlook is Stable.

SECURITY 

The bonds are general obligations of the district, and all taxable property is 
subject to the levy of taxes to pay the bonds without limitation as to rate, but
limited as to amount.

KEY RATING DRIVERS

AMPLE RESERVES ON A CASH BASIS:  A trend of healthy net surpluses in recent 
years has led to the build-up of ample cash balances, which amounted to more 
than a year's operating requirements in fiscal 2012.  Thorough analysis of 
ending balances is impaired given the district does not use GAAP accounting. 

ABOVE-AVERAGE SOCIOECONOMIC FACTORS: The district serves an affluent suburb of 
Chicago, whose residents display above-average wealth characteristics.  

FAVORABLE DEBT PROFILE: Debt burden is moderate and payout is very rapid.  
Carrying costs are affordable, as pension costs are paid by the state. 

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics 
including the district's strong reserves and solid economic indicators. The 
Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The Homewood-Flossmoor Community High School District is located in a suburban 
area approximately 20 miles south of Chicago.  The district currently serves 
2,850 students and enrollments have declined 4.6% over the past five school 
years.

ABOVE-AVERAGE DEMOGRAPHICS

The villages of Homewood and Flossmoor together comprise the majority of the 
district's taxable value (TV), with Homewood accounting for approximately 48% 
and Flossmoor 34%. The remainder is made up of portions of Glenwood, Chicago 
Heights, Olympia Fields, and Hazel Crest. Resident wealth levels for the 
district are above average. Per capita money income for the district is a strong
127% of the state and 133% of the nation.  

 

Although TVdeclined 19% in 2012 as a result of triennial reassessment, 
reflecting previous declines in real estate values, school district revenues 
were not directly affected and the property tax levy increased by 3%.  Property 
tax limitations in the state limit the growth in the levy, but not the mill 
rate.  The decline in assessed valuation contributed to a modest $500,000 
increase in state aid (equivalent to approximately 1% of spending).  The largest
taxpayers are largely retail oriented, with the top 10 accounting for a moderate
8% of the tax base.

SOLID FINANCIAL MANAGEMENT WITH STRONG RESERVES

Financial performance for fiscal 2012 resulted in a net operating deficit after 
transfers of approximately $530,000, or 1% of spending as reflected in the 
operating funds (education, operations & maintenance, debt service, and 
transportation).  The decline was driven by the district's decision to use $4.6 
million for capital expenditures.  In the absence of these expenditures, the 
surplus would have been more in line with the district's performance over the 
past five fiscal years.  The district also experienced an increase in 
expenditures as a result of settling three-year union contracts, which are in 
place through 2015.  

Fitch views negatively the district's cash-basis of accounting, which hampers 
meaningful analysis of fund balance. Operating cash balances are high, reaching 
nearly 80% of spending for operating funds in fiscal 2012.  Delays in the timing
of state revenues have not affected the district's operations, given the 
financial flexibility offered by its strong reserve levels, and the timing of 
remittances from the state has improved. 

The working cash fund provides an additional cushion, with cash balances 
equating to another $13.2 million or 24% of fiscal 2012 operating funds 
spending. The district is currently levying the maximum allowable amount to fund
working cash, which helps maintain reserves at or above the policy level of 10 
months of expenditures.  The district's reserves currently exceed this level.  
Management has indicated that the working cash build-up is intended to help the 
district weather lean years in the future as well as provide funds for moderate 
pay-go capital needs.

Preliminary results for fiscal 2013 indicate that the district ran a net 
operating surplus after transfers (education, operations & maintenance, debt 
service, and transportation funds).  Ending reserves were $78.6 million, 
including $24 million of bond proceeds issued for capital projects, representing
71% of operating expenditures, net of bond proceeds.  The fiscal 2014 budget 
includes a $3 million net operating surplus after transfers.  The ending balance
for all funds is budgeted at $58.1 million or 116% of expenditures.  This 
reflects expenditure of the entire amount of bond proceeds.  

Financial forecasts project narrowing but still positive margins over the next 
several years. The district recently enacted a plan to reduce expenditures by 
$400,000 in fiscal 2014 and plan further reductions of $250,000 per year for the
next four fiscal years.  The district's substantial reserves and the practice of
budgeting for pay-go capital provide budgetary flexibility.

MANAGEABLE DEBT AND LONG-TERM LIABILITIES

The district's overall debt burden is moderate at 4.8% of market value, or 
$2,944 per capita.  Amortization is rapid with 90% of principal maturing in the 
next 10 years.  No future borrowing plans have been identified over the next 
four years, as capital improvement program needs are expected to be met though 
pay-go funding.  Carrying costs are affordable, representing 6.5% of total 
expenditures, and largely reflect debt service, as the state pays pension and 
other post-employment benefits (OPEB) costs.   

The district's pension liability is limited to its participation in the 
Teachers' Retirement System, a cost-sharing multi-employer plan, and the 
Illinois Municipal Retirement Fund (IMRF), an agent multi-employer plan. Funding
of the TRS plan is weak, but this concern is mitigated by the fact that the 
state pays pension costs related to district employees. Fitch believes that, 
while not currently envisioned, if this arrangement were to end, it could 
present significant pressure on district finances.

The district has not determined its unfunded liability for OPEB, given the 
non-GAAP reporting, which Fitch considers to be a credit weakness. Less than 1% 
of annual spending goes toward the district's OPEB requirements on a 
pay-as-you-go basis but this figure could be significantly higher on an 
actuarial basis. 

Contact:

Primary Analyst

Sheena Gordon

Associate Director

+1-212-908-9115

Fitch Ratings, Inc.

One State Street Plaza

New York, NY 10004

Secondary Analyst

Arlene Bohner

Director

+1-212-908-0554

Committee Chairperson

Laura Porter

Managing Director

+1-212-908-0575

Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: 
elizabeth.fogerty@fitchratings.com.

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 andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 
here. IN ADDITION, RATING 
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ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH 
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