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MOODY'S DOWNGRADES TO A1 FROM Aa3 KANKAKEE COUNTY'S (IL) LONG-TERM GENERAL OBLIGATION RATING; NEGATIVE OUTLOOK REMOVED

07 Dec 2010

A1 RATING ASSIGNED TO COUNTY'S $6.7 MILLION GO REFUNDING BONDS (ALTERNATE REVENUE SOURCE), SERIES 2010

County
IL

Moody's Rating

ISSUE

RATING

General Obligation Refunding Bonds (Alternate Revenue Source), Series 2010

A1

  Sale Amount

$6,665,000

  Expected Sale Date

12/14/10

  Rating Description

General Obligation Refunding Bonds

 

Opinion

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), Series 2010.

RATINGS RATIONALE

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 UNEMPLOYMENT LEVELS

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 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 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 financial position.

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 (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.

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

Mark G. Lazarus
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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New York, NY 10007
USA

MOODY'S DOWNGRADES TO A1 FROM Aa3 KANKAKEE COUNTY'S (IL) LONG-TERM GENERAL OBLIGATION RATING; NEGATIVE OUTLOOK REMOVED
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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