News Column

Fitch Rates Hinsdale Village, IL's ULTGOs 'AAA'; Outlook Stable

June 10, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AAA' rating to the following Hinsdale Village, IL (the village) unlimited tax general obligation (ULTGO) bonds:

--$5 million general obligation (GO) bonds (alternate revenue source), series 2014B.

The bonds are expected to sell via competitive sale on June 17, 2014. Proceeds will fund various capital improvements.

In addition, Fitch affirms the following bonds at 'AAA':

--$0.115 million ULTGO library fund tax bonds, series 2006;

--$2.59 million ULTGO waterworks & sewer bonds, series 2008C;

--$1.92 million LTGO bonds, series 2009;

--$4.88 million ULTGO bonds, series 2012A;

--$2.66 million ULTGO library fund tax bonds, series 2013A;

--$2.03 million ULTGO bonds, series 2014A.

The Rating Outlook is Stable.

SECURITY

The 2003, 2008C, 2012A, 2013A, 2014A and 2014B series 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 2009 bonds are secured by 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: General fund reserves have grown in each of the last five fiscal years as a result of conservative fiscal budgeting and management. These sizable reserve balances, in concert with the village's conservative and proactive approach to fiscal management, afford considerable 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. Continued declines in assessed valuation are a result of recording lags from the recession and current development activity is expected to be reflected in future valuations.

WEAK PENSION FUNDING: Pension funding levels are generally below average, but the village has been overfunding two of the three plans to improve their status.

MODERATE LONG-TERM OBLIGATIONS: Carrying costs are low and no additional debt is planned.

RATING REFLECTS ULTGO PLEDGE: Fitch recognizes the availability of additional pledged revenues for this issue; however, the 'AAA' rating is based upon the village's ultimate ULTGO pledge.

LTGO AND ULTGO RATINGS ON PAR: The LTGO and ULTGO ratings are on par, as a result of the village's ample financial flexibility.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

Hinsdale is a wealthy suburb whose desirable location within the Chicago metropolitan area attracts affluent and highly skilled residents. The census 2010 population was 16,816, having declined slightly from the previous decade.

SUPERIOR SOCIOECONOMIC PROFILE

Per capita income levels are very high at 257% of the state and 271% of national averages and 74% of residents have achieved higher education. Market value per capita is substantial at $277,000.

Unemployment data for the village is unavailable; however, DuPage County reported 6.6% unemployment in March 2014, compared with 7.5% in March 2013, lower than the state rate of 8.3% and on par with the national rate of 6.8% for the same month. The majority of the village is located in DuPage County, with the remainder in Cook County.

AMPLE FINANCIAL FLEXIBILITY

Solid reserves, careful expenditure controls, a diverse revenue stream and the inclusion of significant discretionary expenditure items yield considerable financial flexibility. Conservative budgeting on both the revenue and expenditure sides contributed to general fund operating surpluses (after transfers) in the past five audited fiscal years, culminating in a year-end fiscal 2013 unrestricted general fund balance of $4.9 million or 26.7% of spending.

Fund balance was largely flat in fiscal 2013, after a large transfer out to fund future capital expenses for infrastructure improvements and water and sewer projects not included in the Master Infrastructure Plan. Revenues were slightly above budget as a result of increased sales and income tax revenue. Expenditures were under budget largely due to lower than expected general government and public service expenses.

The village has continued positive financial performance with fiscal 2014 financial results indicating a net operating surplus of approximately $455,000, or 2.8% of projected expenditures, after an approximate $1.9 million transfer out of the general fund for infrastructure improvements and $150,000 for discretionary pension contributions above the annual required contribution (ARC). The village has consistently funded a considerable amount of capital expenditures from cash reserves, a strong indicator of their financial flexibility. Sales tax revenue demonstrated a 3.1% year-over-year increase, compared to 5.7% growth the year before. The expectations for the fiscal 2015 budget include conservative assumptions and balanced operations.

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). Housing starts and development activity, along with stabilizing home prices, in the village should help stabilize the tax base in the near future.

MODERATE LONG-TERM OBLIGATIONS

Overall debt burden is a moderate 2.5% of full value but a high $6,691 per capita, reflecting the wealthy tax base. Principal amortization is fast with 66% of debt scheduled for retirement within 10 years.

The village plans to dedicate about $5 million annually, on a pay-go basis, toward an ongoing 15-year, $87 million infrastructure improvement plan to improve streets and the water and sewer systems, which started in 2009. 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 ARC payment for all three plans. When there are surpluses available at the end of the year, the village aims to fund above the ARC, which it did for the police and fire pensions in fiscal years 2012-2014.

Nevertheless, none of the three plans is well-funded. The IMRF plan has the weakest funding status of the three plans, with a funded ratio estimated at 56.5% when using a Fitch-adjusted 7% investment return assumption. The fire plan is 59.2% and the police plan is 72.3% funded using the plans' 6.75% investment return assumption. Other post-employment benefits (OPEB) are covered through an implicit rate subsidy. Total carrying costs for debt service, annually required pension payments, and OPEB are a low 12.7% of governmental expenditures.

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, Bond Counsel, and Financial Advisor.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=833937

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Eric Friedman

Director

+1-212-908-9181

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

George Stimola

Analyst

+1-212-908-0770

or

Committee Chairperson

Marcy Block

Senior Director

+1-212-908-0239

or

Media Relations

Elizabeth Fogerty, New York, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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