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Fitch Rates Kendall, Kane, & Will Counties Community USD 308 (IL) Revs 'AA'; Outlook StableFitch Ratings has assigned an 'AA' rating to the following Kendall, Kane, & Will Counties Community Unit School District 308 (USD), Illinois bonds: --$103.42 million unlimited tax general obligation (ULTGO) refunding school bonds, series 2016. The bonds are expected to be sold via negotiated sale on Feb. 10, 2016. Proceeds will refund a portion of the district's outstanding ULTGO bonds including GO school bonds, series 2003C and series 2007 and capital appreciation school bonds, series 2005. The Rating Outlook is Stable SECURITY The bonds are payable from the district's full faith and credit and unlimited ad valorem tax on all taxable property within the district. KEY RATING DRIVERS SOUND FINANCIAL PERFORMANCE: The district has maintained sound financial reserves despite limited ability to raise property tax revenues in an environment of declining equalized assessed values (EAV). HIGH DEBT PROFILE: The district's overall debt burden is high relative to the tax base, although annual debt service expenditures consume a moderate share of the district's operating budget due to slow amortization of principal. STABILIZING TAX BASE: The district's 2015 EAV is expected to increase by 4.6% after five years of declines associated with the recession. Wealth and employment metrics trends are above average. GROWTH IN STATE AID: Despite the state budget impasse, state aid to the district has grown steadily due primarily to enrollment growth. State revenue growth has offset the district's limited ability to increase property taxes. RATING SENSITIVITIES The rating is sensitive to the district's ability to maintain balanced financial operations. A deterioration of the district's financial position as evidenced by inability to maintain balanced operations would put pressure on the current rating. CREDIT PROFILE The district is located approximately 45 miles west of Chicago, primarily in Kendall County and in small portions of Kane and Will counties. District enrollment has grown 8.4% from 2011 through 2015 reaching 18,043 students. The district anticipates continued enrollment growth and has excess capacity for 4,800 students in aggregate. DIVERSE LOCAL ECONOMY STABLIZING The district's economy reflects a mix of manufacturing, commercial, and public enterprises. Caterpillar, Inc. (IDR 'A', Stable Outlook) is the largest employer with a staff of 2,300 which accounts for 3.5% of Kendall county's total employment. District unemployment for 2015 was 4.5% as of November 2015, below the state average of 5.9%. The city's employment levels increased modestly in fiscal 2015. Median household income levels exceed the state and nation. Assessed valuation (AV) declined by 0.3% in 2014 but the district estimates AV will increase by 4.6% in 2015 due to increasing stability in the housing market. Population estimates for 2014 indicate 5.3% growth within the district since the 2010 Census. ENROLLMENT DRIVES STATE AID INCREASES General state aid, which accounted for 24% of fiscal 2015 general fund revenue, is expected to increase given steady enrollment growth. Enrollment has grown steadily over the past 10 years including 3.4% growth in 2015 and projected growth of 1% to 2% in 2016. A key factor in determining general state aid appropriations includes, but is not limited to, growth in enrollment, which has resulted in steady increases in state aid to the district. However, due to the state's ongoing financial pressures the district's state aid appropriation has been prorated. The fiscal 2016 adopted budget assumes that state aid will be prorated by $4.5 million; however, general state aid is still expected to increase by 17.7% over fiscal 2015. SOUND FINANCIAL OPERATIONS WITH HEALTHY RESERVES The district is expected to maintain stable financial operations given increasing state aid due to growing enrollment and ongoing cost control measures including the consolidation of services. The Kendall County Special Education Cooperative, which provides special education service to the district, will be dissolved in fiscal 2016. As a result, the district anticipates $15 million in annual savings which will be used to offset the cost of adding 300 special education teachers, paraprofessionals and coordinators to the district's payroll. The district is expecting additional savings due to increases in federal revenues, reduction in administration costs and other operational efficiencies. In fiscal 2015, state aid to the general fund increased by 16.9% over fiscal 2014 as a result of enrollment growth of 3.4% (588 students). The year ended with $21.4 million in unassigned general fund balance, a satisfactory 12.6% of general fund expenditures. A portion of the unassigned general fund balance, $12.8 million, is in the working cash fund which is used for internal borrowin in the event of late property tax collections, delayed state aid receipts or low general fund balance. Additionally, the district supplements liquidity with a $10 million tax anticipation warrant issued in April and paid in June. The district issues tax anticipated warrants on an annual basis to account for delays in property tax collections. In prior years, the district had increased its transportation fund levy, which does not have a rate cap, to offset decreases in other levies. Transfers from the educational, operations and maintenance and transportation funds are allowable under the state's school code for non-recurring expenses. The fiscal 2016 transportation fund budget will only levy to cover transportation costs and does not include a surplus. The adopted fiscal 2016 budget assumed a healthy $2 million general fund surplus; however, it did not include a negotiated teacher salary increase. Based on current year results, fiscal 2016 is expected to end with a modest $670,000 general fund surplus. ELEVATED DEBT LEVELS; MANAGEABLE DEBT SERVICE The district's high debt burden relative to tax-base market value is 8.4% including the current refunding bonds. Carrying costs are expected to remain manageable given the district's multi-phased debt restructuring debt plan which will lower annual debt service costs by extending the maturity by eight years. Rather than originally issuing 30-year bonds for school construction, prior to the recession the district had issued 20-year bonds with an aggressive debt service schedule. The current refunding, phase one of the restructuring plan, extends the debt to a 30-year bond schedule and lowers annual debt service payments. The amortization is below average with 41.2% principal paid within 10 years after the refunding. The multi-phased restructuring plan includes additional refunding bonds that are expected to be issued in 2017, 2020 and 2023. The plan is expected to level out debt service payments and reduce the annual tax burden. The district underwent significant capital improvements since the voters approved a $450 million referendum in 2006 to build and improve school facilities. Currently, the district has identified $26 million in additional improvements in the five-year facilities maintenance plan. The district is in line for a $49 million state Capital Development Board Grant, and work on the additional improvements is contingent on receipt of this funding, the timing of which is uncertain. Currently, the district has 4,800-student excess capacity, which is sufficient for expected growth projections over the next five years. The district participates in two state-sponsored, cost-sharing multiple-employer pension programs, the Illinois Teachers' Retirement System (TRS) and the Illinois Municipal Retirement Fund (IMRF) for which the state establishes statutory required contribution levels. The state makes employer contributions to the TRS on behalf of the district. Under GASB 68, the district reports a fiscal 2015 net pension liability (NPL) of $10.5 million combined, with fiduciary assets covering 82.6% of total pension liabilities at the plan's 7.5% investment return assumption (approximately 78.3% based on a lower adjusted 7% investment rate assumption). The district's proportionate share of the NPL of the plans represents a modest 0.3% of fiscal 2015 market value. Carrying costs (including debt service, pension and OPEB contributions) are manageable at 19.5% of fiscal 2015 governmental spending. Additional information is available at 'www.fitchratings.com'. Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by the end of the first quarter of 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date. In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope, IHS (News - Alert) Global Insight, and Zillow Group. Applicable Criteria
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012) Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
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