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Fitch Rates Cook County Forest Preserve, IL's GOs 'AA'; Outlook Stable

Monday, June 04, 2012
Wall Street Journal

Fitch Ratings has assigned an 'AA' rating to the following Forest Preserve District of Cook County, Illinois (the district) general obligation (GO) bonds: --$45,850,000 GO unlimited tax refunding bonds, series 2012A; --$54,700,000 GO limited tax project and refunding bonds, series 2012B; --$56,450,000 GO unlimited tax bonds (personal property replacement tax alternative revenue source), series 2012C. The bonds are expected to be sold via negotiated sale the week of June 11. Proceeds will be used for various capital improvement projects and to refund outstanding bonds. In addition, Fitch affirms the following ratings: --$37.4 million outstanding GO bonds at 'AA'. The Rating Outlook is Stable. SECURITY The series 2012A bonds are secured by a pledge of a direct annual tax unlimited as to rate or amount. The series 2012B bonds are secured by a direct annual tax unlimited as to rate, but limited as to amount by the provisions of the Property Tax Extension Limitation Law. The series 2012C bonds are primarily secured by the Personal Property Replacement Tax, and ultimately are direct and general obligations of the district, without limitation as to rate or amount. KEY RATING DRIVERS HEALTHY FINANCIAL FLEXIBILITY: The district's financial profile is strong with robust reserve levels and ample liquidity. Substantial taxing margin in the corporate fund further enhances the district's financial flexibility. STRONG REGIONAL ECONOMIC BASE: The area economy is broad and diverse, anchored by the city of Chicago. MODERATE DEBT BURDEN: The district's debt profile is characterized by average principal amortization, limited future debt plans, and a moderate overall debt burden. The district's large debt service carrying costs are not unusual for single-purpose districts. IMPROVED RELATIONS WITH COUNTY: The district is formalizing intergovernmental agreements with Cook County, with whom it shares a board. Fitch views these agreements positively as it should minimize unexpected swings in cost allocations between the district and the county. SUBPAR PENSION FUNDING: The district continues to underfund its pension liability, in accordance with state statute, leading to a weakening funded ratio. PARITY RATINGS: The ULTGO and LTGO ratings are the same due to the district's substantial financial flexibility. CREDIT PROFILE DISTRICT BENEFITS FROM EXPANSIVE CHICAGO ECONOMY Established in 1914 for the purpose of land conservation, the Forest Preserve District of Cook County has a tax base coterminous with the county (GO rated 'AA-', Negative Outlook by Fitch). The district is a separate entity from the county with independent taxing powers, although governed by the county commissioners. Land owned by the district encompasses 68,000 acres, approximately 11% of the county's land mass, and the district is authorized to preserve a total of up 75,000 acres of open land. The district's service area benefits from a broad and diverse economic base, anchored by the city of Chicago (GO rated 'AA', Stable Outlook by Fitch), a nationally and globally important business center which serves as headquarters to over 30 Fortune 500 corporations. The unemployment rate of 9.1% as of February 2012 is below the state level of 9.4% but above the national average of 8.7%. ELEVATED FUND BALANCE LEVELS PROVIDE AMPLE FINANCIAL FLEXIBILITY Financial operations for the district have been consistently positive for the past five years with increasing reserves. The district ended 2010 with a $3.2 million surplus in the corporate fund bringing the unreserved fund balance to $35.3 million, equal to a robust 72% of spending. 2011 results show a $4.8 million surplus after transfers, bringing corporate fund reserves up to almost 79% of expenditures and transfers out. In addition, the district has substantial reserves in other funds that could be called upon if necessary, including $13.4 million of unreserved fund balance in the working cash fund, which is used by the district to make temporary loans to other district funds, and $13.3 million in reserved fund balance in the bond and interest fund. The district expects to end 2012 roughly flat, with no increase in the property tax levy for the second straight year. The district projects small fund balance draws in later years, which Fitch believes are prudent given the district's extremely high balances. The property tax levy has been kept flat since 2010, and is expected to be maintained again in 2013. The district has substantial flexibility to increase its levies. The district's relatively new management team is actively seeking ways to better manage licensing agreements and develop other sources of revenue. IMPROVED RELATIONS WITH COOK COUNTY The district and Cook County share a Board of Commissioners. The county has lent money to the district in the past, creating concern regarding the independence of the district, and there has been consideration of the district creating its own independent board. As an alternative, the district has been actively working with the county to create intergovernmental agreements to formalize its relationship with the county. Fitch is comforted by these developments as it should minimize the risk of shifting cost allocations between the district and the county. MODERATE DEBT BURDEN The district's debt burden is moderate when measured on a per capita basis and as a percentage of market value, consisting mainly of overlapping debt. Debt service costs account for a high 25% of spending for the combined corporate and bond and interest funds. Such high carrying costs are not uncommon for a district with a limited and capital intensive service nature. The new issue will slow down amortization to an average 48% of principal being retired within the next 10 years. This is the district's first debt issuance since 2004, and management does not envision additional debt in the near future. UNDERFUNDED PENSION BECOMES A GROWING CHALLENGE The district funds its pension plan in accordance with state statute, which continues to be well under the actuarially required contribution (ARC). This funding formula, coupled with recent investment losses, have led to a decrease in the funded ratio from 92.4% at the end of fiscal 2008 to 68.1% at the end of fiscal 2011, assuming the district's 7.5% investment return rate. Using Fitch's more conservative 7% investment assumption, the funded ratio declines slightly to a below average 64.6%. The ARC has been increasing significantly over the past few years, from $2.8 million in 2007 to $8.6 million in 2011 and $9.6 million in 2012. While the district's actual $2.5 million contribution accounting for a moderate 4.7% of spending, funding the full ARC would pressure the district's budget, equaling over 16% of actual 2011 spending in the corporate fund. Management indicated a willingness to examine contributing more than its statutorily required payment once it has more clarity about statewide pension reform. The district's unfunded actuarial liability as of Dec. 31, 2011 is a low $83.4 million. 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 Global Insight, Zillow.com, National Association of Realtors, Underwriter.


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