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MOODY'S ASSIGNS A1 RATING TO KANKAKEE COUNTY'S (IL) $6.7 MILLION GENERAL OBLIGATION REFUNDING BONDS (ALTERNATE REVENUE SOURCE), SERIES 2011

17 May 2011

A1 AFFIRMATION AFFECTS $14.2 MILLION OF POST-SALE GOULT DEBT

County
IL

Moody's Rating

ISSUE

RATING

General Obligation Refunding Bonds (Alternate Revenue Source)

A1

  Sale Amount

$6,650,000

  Expected Sale Date

05/19/11

  Rating Description

General Obligation Refunding Bonds

 

Opinion

NEW YORK, May 17, 2011 -- Moody's Investors Service has assigned a A1 rating to Kankakee County's (IL) $6.65 million General Obligation Refunding Bonds (Alternate Revenue Source), Series 2011. Concurrently, Moody's has affirmed the A1 long-term General Obligation rating of Kankakee County and the Kankakee County Public Building Commission (IL), affecting approximately $14.2 million of outstanding general obligation unlimited tax debt. Additionally, Moody's has affirmed the county's outstanding general obligation limited tax debt certificates rating of A2, affecting $12.7 million.

SUMMARY RATINGS RATIONALE

While the current issue is ultimately secured by the county's general obligation unlimited tax pledge, debt service is expected to be supported by revenues generated from per diem prisoners incarceration service fees pursuant to intergovernmental agreements between the county and local and federal corrections agencies. Bond proceeds will refund a portion of the county's Debt Certificates, Series 2005A for an estimated net present savings of 2.6%. The affirmation reflects the stabilization of the county's financial operations, sizable tax base with below average socioeconomic indicators, and a manageable debt burden with plans to issue short-term debt to support operations. The rating distinction on the debt certificates reflects the lack of a dedicated tax levy for repayment well as the strength of credit characteristics inherent in the district's long-term rating.

STRENGTHS:

-Sizeable tax base continuing to experience strong growth

-Projected operating surplus for fiscal 2011, indicating improved fiscal conditions

CHALLENGES:

-Recurring operating deficits resulting in a significant draw down of the county's unreserved fund balance

-Possible reduction in state funding for local governments

DETAILED CREDIT DISCUSSION

SIZABLE TAX BASE LOCATED IN CENTRAL ILLINOIS FACING ABOVE AVERAGE UNEMPLOYMENT LEVELS

Kankakee County's tax base is expected to remain stable after showing steady improvement from the severe contraction experienced in the mid-1980s, which resulted in a 7% loss in population. Evidencing the recovery, the county's tax base has grown to a sizeable $6.1 billion with strong 8.1% average annual growth since 2004. Census estimates for 2009 reflect a 9.0% increase in population since 2000. Operations among the county's top employers are reportedly stable, with officials noting possible future expansion at CSL Behring (100 new employees), a pharmaceutical company that specializes in protein based therapies. Further tax base expansion is expected to be stimulated in 2012 by the construction of a $750 million wind farm in the region, with the project securing approval from requisite government agencies and now contingent on securing purchasing contracts for the electricity that will be produced at the site. Socioeconomic indicators are somewhat below state medians, with median family income and per capita income representing 88% and 82% of state levels, respectively. The county's unemployment rate (12.7% in March 2011) has historically exceeded state and national norms (9.1% and 9.2%, during the same period, respectively) and but has decreased over the March 2010 rate of 15.2%.

PRESSURED FINANCIAL POSITION IMPROVING SLIGHTLY DUE TO EXPENDITURE REDUCTIONS AND INCREASING REVENUE COLLECTIONS

The county's pressured financial operations have improved slightly after experiencing a significant decline in fiscal 2009. The county posted a moderate operating surplus in fiscal 2008, growing the General Fund balance to $5.1 million (or a moderate 15.9% of General Fund revenues). Notably, labor contracts remained unsettled at the close of the fiscal year. In fiscal 2009, the county experienced significant budget variances resulting from revenue declines of approximately $2.5 million and a $500,000 negative expenditure variance for retroactive pay associated with the resolution of the Correction Officers' contract, which expired in 2006. Although the county accrued a $900,000 liability to address retroactive pay, the arbitration outcome required the county to incur a $1.4 million expense. The result was a depletion of the General Fund reserves to $0.9 million, a narrow 3.2% of revenues.

The county is estimating that it will close fiscal year 2010, which ended on November 30, with a $364,000 operating deficit, further drawing down reserve levels to $573,000. Originally, the county estimated it would close fiscal 2010 with a $800,000 deficit, drawing reserves to an extremely narrow $136,000. The positive variance is due in part to expenses coming in $2.3 million under budget. Going forward, management cites a commitment to restoring a portion of its fund balance in fiscal year 2011, estimating a $875,000 budget surplus for fiscal 2011, which will bring the total general fund balance to $1.4 million at the close of the fiscal year. Notably, the county Sherriff's union contract recently settled, with retroactive pay increases payable in fiscal 2012, but the Corrections Officers and Building and Maintenance workers contracts remain unsettled at this time and may place additional pressure on the county's operating budget going forward. Additionally, officials expect to use the approximately $750,000 of revenues generated from the wind farm project to improve the county's fund balance, should the project commence in FY2012.

MANAGEABLE DEBT BURDEN BUT ANTICIPATING SHORT-TERM BORROWING FOR OPERATING EXPENSES

The county's modest overall debt burden of 2.9% is expected to remain affordable due to minimal future borrowing plans and the expectation of continued moderate growth in taxable valuation. The county is a relatively infrequent borrower and its direct debt remains minimal at 0.4%. Debt amortization is average, with 64.3% of principal repaid in ten years. All of the county's outstanding debt is in fixed rate mode, and the county is not party to any derivative agreements. As a result of the county's deteriorated fiscal position, the county plans to continue issuing short-term tax anticipation notes for payroll expenses. This practice may continue for the next two to three years or until tax collections return to previous levels or the wind farm project commences. Though Moody's views this as a weak practice, the county's debt profile is expected to remain manageable.

What could change the rating UP:

-Improvement in regional economic trends leading to stabilization and near-term growth in major revenue streams

-Continued trends of balanced to surplus General Fund operations with limited reliance upon non-recurring revenue enhancements or expenditure reductions

What could change the rating DOWN:

-Further economic deterioration, resulting in continued stagnation of major revenue streams and increasing pressures on county operations

- Structural imbalance yielding further declines in General Fund reserve levels

KEY STATISTICS:

2000 population (census): 103,833 (7.9% increase from 1990)

2009 population (census estimate): 113,214 (9.0% increase from 2000)

2009 full valuation: $6.1 billion

2009 full valuation per capita: $54,114

Median family income (as % of state): 88.2%

Per capita income (as % of state): 82%

County unemployment (March 2011): 12.7%

Overall Debt burden: 2.9% (0.4% direct)

Principal amortization (10 years): 64.3%

Fiscal 2009 General Fund balance: $0.9 million (3.2% of General Fund revenues)

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, and public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Genevieve Nolan
Analyst
Public Finance Group
Moody's Investors Service

Edward Damutz
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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MOODY'S ASSIGNS A1 RATING TO KANKAKEE COUNTY'S (IL) $6.7 MILLION GENERAL OBLIGATION REFUNDING BONDS (ALTERNATE REVENUE SOURCE), SERIES 2011
No Related Data.
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