News Column

Fitch Rates Bloomington, IL's GOs 'AA+'; Outlook Stable

August 12, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AA+' rating to the following Bloomington, IL (the city) general obligation (GO) bonds:

--$14.91 million taxable GO refunding bonds, series 2014A;

--$9.34 million GO refunding bonds, series 2014B.

The bonds are scheduled to sell via competitive sale the week of Aug. 18. Proceeds will be used to refund the city's series 2004 taxable GO bonds.

In addition, Fitch affirms the following ratings:

--$53 million outstanding GO bonds at 'AA+'.

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

DIVERSE REVENUE STREAM: The city has a diverse stream of operating revenues and the ability to adjust many of these as necessary. Management has increased tax rates and tapped new revenue streams as necessary.

STABLE ECONOMY: The local economy benefits from above-average resident wealth levels, low unemployment and a stable tax base.

STRONG MANAGEMENT: The management team's restoration of structural budgetary balance, which was achieved through significant cost-cutting, is a positive credit factor.

PENSION IMPROVEMENT: Pension funding levels are mixed, with increased funding needs likely to create financial pressures in the future. Fitch positively notes management's efforts to improve funding through more aggressive funding targets and new revenue sources.

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.

RATING SENSITIVITIES:

STATE FARM DOWNSIZING: A material reduction in State Farm's employment levels in the city would likely have a negative effect on the city's economy.

CREDIT PROFILE

Bloomington is located 125 miles from Chicago and is home to the corporate headquarters of State Farm Insurance. The city's population grew 18% between the 2000 and 2010 censuses, and is currently 77,000.

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 May 2014, the city's unemployment rate stood at 6.1%, well below the state (7.2%) and the same as the nation.

The local economy benefits from a mix of insurance, government, agriculture, higher education, and healthcare employers. Among the largest private employers are State Farm Insurance, Country Financial Insurance and Mitsubishi Motors. The employment and tax bases are concentrated in State Farm, which makes up a high 9.8% of the tax base; however, this concern 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 most recent assessed value flat to the prior year.

DIVERSE REVENUE SOURCES PRODUCE IMPROVED RESULTS

A new management team and improvement in the local economy has restored financial flexibility after several years of deficits resulted in negative unreserved fund balance levels as recent as fiscal 2008 (year ended April 30). 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 20% 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 for the general fund, 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 finished fiscal 2013 with a $3.2 million surplus, increasing its unrestricted fund balance to $18.9 million or 22% of expenditures. The surplus was primarily driven by a 10% increase in sales tax revenues. Unaudited fiscal 2014 results show a $4 million fund balance draw, reducing unrestricted fund balance to approximately 17% of expenditures. The deficit was caused by declines in several economically sensitive taxes and a transfer out of the general fund to bolster the coliseum fund.

The fiscal 2015 budget assumes a $525,000 surplus. The city adopted two new taxes and increased its utility tax rates to offset a $1.6 million increase in pension costs. 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, and is currently evaluating increases to several taxes to offset further increases in pension costs. Fitch views favorably management's commitment to maintaining reserve levels.

MODERATE DEBT BURDEN

Overall debt is moderate at 4.6% of market value and $3,060 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 above average with 69% of GO debt retired within 10 years. Barring the issuance of any unplanned debt, direct debt costs will decline in the next few years.

LOCAL PENSION PLANS REMAIN POORLY FUNDED

The city participates in three pension plans. The Illinois Municipal Retirement Fund (IMRF) is 82% funded as of Dec. 31, 2012, or an estimated 78% funded using Fitch's 7% return assumption. The city's police and firemen's pensions remain poorly funded. As of May 1, 2013, the plans are estimated to be a weak 49% and 51% funded, respectively, using Fitch's 7% return assumption. IMRF is the largest of the three plans, making up 44% of the actuarial accrued liability.

To improve funding levels, the city has increased payments to the police and fire plans in recent years, and plans to substantially increase contributions going forward. The city recently passed an ordinance requiring the plans to be 100% funded by 2041, rather than the 90% funded level required by the state. Fitch views these pension plans as a credit concern for the city but believes that the successful implementation of the city's funding plan without offsetting declines in overall financial flexibility could lead to positive rating action in the medium-to-long term.

The city funds its other post-employment benefits (OPEB) on a pay-go basis. The Unfunded Actuarial Accrued Liability (UAAL) for OPEB is equivalent to a low 0.3% of market value. Total carrying costs for debt, pension and OPEB are a moderate 19% of fiscal 2013 governmental expenses.

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 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

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=849514

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

Brendan Scher

Analyst

+1 212-908-0686

or

Committee Chairperson

Arlene Bohner

Senior Director

+1 212-908-0554

or

Media Relations, New York

Elizabeth Fogerty

+1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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