Fitch Rates Bloomington, IL's GOs 'AA+'; Outlook Stable
NEW YORK -- October 8, 2013
Fitch Ratings assigns an 'AA+' rating to the following Bloomington, IL (the
city) general obligation (GO) bonds:
--$7.89 million GO refunding bonds, series 2013A;
--$9.315 million GO bonds, series 2013B;
--$600,000 taxable GO bonds, series 2013C.
The bonds are scheduled to sell via competitive sale the week of Oct. 14.
Proceeds will be used for capital projects and to refund the city's series
In addition, Fitch affirms the following ratings:
--$61 million outstanding GO bonds at 'AA+'.
The Rating Outlook is Stable.
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.
Several years of large surpluses have provided the city with heightened
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 IMPROVEMENT: Pension funding levels are mixed, with increased funding
needs likely creating financial pressures in the future. The restatement of
the funding level for the state-run plan somewhat reduces Fitch's concern
about this attribute.
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.
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. Fitch
considers this to be unlikely to occur.
Bloomington is located 125 miles from Chicago and is the corporate
headquarters of State Farm Insurance. The city is adjacent to the town of
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 July 2013, the
city's unemployment rate stood at 7.9%, well below the state (9.5%) and
slightly above the nation (7.7%). 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 most recent taxable value up 0.4%.
DIVERSE REVENUE SOURCES PRODUCE IMPROVED RESULTS
After several years of deficits resulted in negative unreserved fund balance
levels as recent as fiscal 2008, 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
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.
Unaudited fiscal 2013 results show a $3.2 million general fund surplus,
primarily from growth in 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 4.8% of market value and $3,258 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 65% of GO debt retired
within 10 years. Barring the issuance of any unplanned debt, direct debt costs
will decline in the next few years.
PENSION RESTATEMENT IMPROVES FUNDING LEVEL
The city participates in three pension plans. The Illinois Municipal
Retirement Fund (IMRF) has historically been reported at very low levels, with
a Dec. 31, 2011 funding level of 30% using Fitch's 7% return assumption, up
from 16% two years earlier. Like several other issuers in the state, the city
and IMRF recognized that its calculation did not factor in the fully funded
benefits for retirees, as permitted by GASB. The recalculated IMRF funding
level is a much stronger 71%. This improved further to 78% as of Dec. 31, 2012
after the city bonded for early retirement benefits.
Though the recalculation of IMRF obligations mitigated much of the concern
about that plan, the city's police and firemen's pensions remain poorly
funded. The plans are a weak 55% and 49% funded, respectively. To improve
funding levels, the city has increased payments to the police and fire plans
in recent years in excess of the actuarially required contribution (ARC), and
plans to substantially increase contributions going forward. 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
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.
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
U.S. Local Government Tax-Supported Rating Criteria
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Eric Friedman,+1 212-908-9181
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
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Media Relations, New York
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