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| [January 03, 2013] |
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Fitch Affirms Lake Zurich CUSD #95, IL GOs at 'AA+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms the following rating on Lake Zurich Community Unit
School District (CUSD) No. 95, IL's (the district) general obligation
(GO) bonds:
--$40.46 million school building GO bonds, series 2000B at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by the county's full faith and credit and ad
valorem taxing power, without limitation as to rate or amount.
KEY RATING DRIVERS
STRONG RESERVES; POSITIVE OPERATING MARGINS: The district has managed to
maintain strong positive operating margins over the past six years and
achieved formidable reserve levels to offset unexpected financial
pressures.
PRUDENT MANAGEMENT: Management has prudent policies, budgets
conservatively, and conducts multi-year forecasting, allowing the
district to comfortably manage state-imposed property tax levy
limitations.
AFFLUENT ECONOMY: The district's economy is affluent, with a sizable
taxable value and above-average wealth and income levels.
AVERAGE DEBT PROFILE: Debt levels are average, benefiting from
pay-as-you-go (paygo) financing and full payout in ten years. Pension
and other post-employment benefit costs are currently minimal.
SECURITY
The bonds are general obligations of the district and secured by the
district's full faith and credit and unlimited taxing authority.
CREDIT PROFILE
The district, with a population of 33,010, is located in Lake County, 37
miles northwest of downtown Chicago. The district serves K-12 students
of the affluent communities of Lake Zurich, Deer Park, Hawthorn Woods,
Kildeer and North Barrington.
SUBSTANTIAL FINANCIAL FLEXIBILITY
The district has preserved strong operating margins with conservative
budgeting despite smaller annual increases in the consumer price index,
to which, under the state's levy, the limit is tied.
The district added $3.4 million or 5% of spending to fund balance in
fiscal 2011. Positive operations were driven by a favorable variance in
property tax revenues, special education program salaries, and some
deferral of capital expenditures. The district withdrew from the
county's cooperative for special education services in 2011; the
district is now providing these services at a lower cost.
Positive variances in special education and weather-related expenditures
led to fiscal 2012's operating surplus of $5.3 million or 7.9% of
spending and a high unrestricted general fund balance totaling 34% of
spending. Included in this amount are legal settlements which resulted
in $1.3 million ($1.9% of spending) in unanticipated general fund
revenue.
The district's 2013 budget shows a $3.1 million surplus across all
governmental funds and increases the property tax levy by a modest 2.8%.
The budget prudently continues the district's practice of paygo capital
financing. Management reports actual expenditures tracking under budget
for the first four months of the year, consistent with past performance.
Management and the teachers' bargaining unt recently settled a
three-year contract which gives 2% annual raises for various concessions.
AFFLUENT ECONOMIC BASE
Wealth levels and housing values in the communities served by the
district greatly exceed county and state medians. The district's tax
base, with a market value of $4.9 billion, has declined 9.1% over the
past two years. The county assessor expects that taxable value will
decline another 3% for the coming tax year, which is in line with
estimates for the metropolitan region. Unemployment in Lake County has
moderated to 7.8% in October 2012 from 9.1% in October 2011, below the
state (8.4%) but above the national (7.5%) average.
Enrollment has declined over the past six years, from 6,409 in 2007-08
to 5,910 in 2012-13 (-7.8%), which prompted the closure of a school in
fiscal 2010. This decline is inconsistent with a relatively stable
population (0.2% growth between census 2000 and 2010). Positively,
recent declines have been considerably less than management projections
and further school closures are currently not contemplated. Fitch notes
that per-pupil funding is not a major revenue for the district ($2.1
million or 2.8% of 2012 revenues) and therefore financial impact to the
district of further marginal declines is likely to be manageable.
STATE PENSION REFORM MAY COST-SHIFT TO DISTRICT
The district participates in the Teacher's Retirement System of the
State of Illinois (TRS), contributions to which are currently made on
behalf of the district by the state, and the Illinois Municipal
Retirement Fund (IMRF). TRS is poorly funded at 48% and 42% using
Fitch's more conservative 7% discount rate assumption. The funded ratio
for the district's IMRF plan is 77%, or an adequate 73% using Fitch's
more conservative 7% discount rate assumption. Fitch notes that the TRS
plan is the larger of the two plans. The district additionally
participates in the state-run retiree health care plan, making a minimal
$288,000 payment in fiscal 2012. Cost of carry in 2012 was a manageable
12.6% of general and debt service fund spending.
The state legislature is currently considering pension reform. The state
makes on-behalf-of payments to the teachers' pension system for the
district. The district is prudently exploring scenarios that shift the
normal cost from the state to the district and plans for funding out of
the current budget. Management believes that a full phase-in would
represent approximately $3.2 million in fiscal 2014. Fitch believes that
the district could manage this additional cost given its proactive
management and low relative taxes.
AVERAGE DEBT BURDEN
The district's overall debt burden is an average $3,491 per capita and
2.3% of market value. Amortization is very rapid, with full payout in
ten years and debt service represented an average 10.6% of general and
debt service fund expenditures in fiscal 2012. The district has no
near-term plans to issue additional debt and will continue to prudently
fund short-term capital needs on a paygo basis.
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, IHS (News - Alert) Global Insight, National
Association of Realtors.
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
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 (News - Alert) 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
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