A1 RATING ASSIGNED TO COUNTY'S $6.7 MILLION GO REFUNDING BONDS (ALTERNATE REVENUE SOURCE), SERIES 2010
General Obligation Refunding Bonds (Alternate Revenue Source), Series 2010
Expected Sale Date
General Obligation Refunding Bonds
NEW YORK, Dec 7, 2010 -- Moody's Investors Service has downgraded to A1 from Aa3 the 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; the negative outlook has been removed.
Additionally, Moody's has downgraded the county's outstanding general obligation
limited tax debt certificates to A2 from A1, affecting $12.7
million. Concurrently, Moody's has assigned an A1 rating to the county's $6.7
million Taxable General Obligation Refunding Bonds (Alternate Revenue Source),
Though the current issue is 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 6.0%. The downgrade reflects the
county's continued pressured financial operations with significantly narrow
reserves, 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.
PRESSURED FINANCIAL OPERATIONS CONTINUE WITH SUBSTANTIAL DRAW DOWN UPON RESERVES
The county's financial operations will remain pressured given a
substantial reduction in operating reserves during the previous two fiscal
years. 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 projecting that it will close fiscal year 2010, which ended on
November 30, with an $800,000 operating deficit, further drawing down reserve
levels to $0.1 million. The deficit is lower than the anticipated shortfall of
$1.2 million, in part due 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, budgeting for a $497,411 surplus which will bring
the total general fund balance to $637.3 million at the close of the fiscal
year. Notably, the county's remaining union contracts are unsettled at this time
and may place additional pressure on the county's operating budget.
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 FY2011.
SIZABLE TAX BASE LOCATED IN CENTRAL ILLINOIS FACING ABOVE AVERAGE
Moody's expects 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 and officials cite recent modest
employment growth at Sun Chemical (30-40 new employees), the world's largest
producer of printing inks and pigments. County officials report moderate
continued residential and commercial expansion, including $15 million of new
construction in fiscal year 2010. Further tax base expansion is expected to be
stimulated by the construction of a $750 million wind farm in the region,
although these plans have been placed on hold pending approval from requisite
governmental agencies. 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
August 2010) has historically exceeded state and national norms (9.9% and
9.5%, during the same period, respectively) and continues increase.
MANAGEABLE DEBT BURDEN BUT ANTICIPATING SHORT-TERM BORROWING FOR OPERATING
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 issue short-term tax anticipation notes in
December 2010 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:
-Implementation of budgetary adjustments leading to restoration of structural
balance and improvement in the County's balance sheet.
-Substantial improvement in financial performance evidenced by operating
surpluses that yield adequate reserve levels.
What could change the rating DOWN:
-Failure to introduce revenue enhancements or expenditure reductions leading to
projections of continued structural imbalance.
-Erosion of the County's budgetary projections for fiscal 2011 that reflect
continued structural imbalance leading to further deterioration of the County's
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 (August 2010): 12.7% (128% of state)
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)
The principal methodology used in this rating was General Obligation
Bonds Issued by U.S. Local Governments published in October, 2009.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, parties not involved in the ratings, and public
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.
Public Finance Group
Moody's Investors Service
Mark G. Lazarus
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S DOWNGRADES TO A1 FROM Aa3 KANKAKEE COUNTY'S (IL) LONG-TERM GENERAL OBLIGATION RATING; NEGATIVE OUTLOOK REMOVED
Moody's Investors Service
250 Greenwich Street
New York, NY 10007