Elgin gets AAA bond rating; report notes city’s economic strengths

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Updated: September 29, 2011 12:47AM

ELGIN — The city’s credit rating is in very good standing.

That was the word recently when Fitch Ratings assigned “AAA” ratings to $9.695 million in general obligation corporate purpose bonds recently put up for sale by the city and affirmed the same rating for $113.4 million in general obligation bonds already sold.

“The positive rating is a reflection of the city council’s commitment to long-term financial planning and the judicious management of resources by city staff, in particular those of CFO Colleen Lavery and the finance department,” City Manager Sean Stegall said,

New York and London-based Fitch Ratings helps determine the interest rate at which the city can borrow money, with the better the rating the more favorable the interest rate granted. An “AAA” is the highest mark a municipality can receive.

The $9.695 million in bonds is being used for rehabilitation and upgrades for the Airlite Water Treatment Plant and underground water system upgrades, Lavery said. The $113.4 million in bonds is for a host of projects already under way or completed from prior years. Those include Bowes Creek and Highland golf clubs, The Centre of Elgin recreation facility; Dundee/Summit intersection improvements; the Fulton Street parking deck; the public works building; and a variety of infrastructure work.

Lavery said typically, bonds are issued each year for water and sewer system work. The city pays off such general obligation bonds through water and sewer user fees.

According to its reports, Fitch’s high bond rating and stable outlook for Elgin were due to a variety of factors.

“Elgin’s financial profile is excellent with conservative fiscal management, extensive financial planning and healthy reserve levels providing ample financial flexibility,” Fitch’s report stated.

Fitch also gave Elgin credit for a favorable debt profile “with low direct debt supported by the use of internal financing sources for capital expenditures and nearly 100 percent of tax-supported debt retired in 10 years. Overall debt is moderate.”

Slowed-down growth

While Fitch found Elgin’s unemployment rates above average and income levels below average, it noted “the city’s economic base is diverse, benefiting from employment opportunities in and around the city, including Chicago.”

“After an extended period of rapid expansion fueled by annexations, the city’s growth has tapered off. Lack of new annexations combined with general housing market weakness has resulted in modest declines in equalized assessed value,” Fitch’s report stated.

Fitch also said, “The city’s pension funding levels have historically been low, but the continued practice of funding the annual required contributions and recent changes to funding requirements should reduce this burden over time. Other post-employment benefits are well funded.”

Fitch took note that this year, “the city reports that revenues are on budget but excess snow removal costs may cause an unreserved year-end balance slightly less than the $30 million (32 percent of spending) budgeted. The city’s five-year forecast shows maintenance of reserves in excess of its policy to keep cash equal to at least 16 percent of expenditures.”

The report notes that “the high level of financial flexibility demonstrated to date is Elgin’s key credit strength mitigating some vulnerability evident in the economy.”

Incentive debate

The news from Fitch comes in advance of a city council retreat set for all day Friday as staff gets the 2012 budget-making process under way. Among financial matters to be considered is how the city will put together incentive packages for attracting businesses to relocate to Elgin.

Last week, the council voted 6-1 to table until its first June meeting such an agreement for Sears Holdings Management Co., with Councilman John Steffen the lone vote against tabling.

Sears recently opened a photo studio for its marketing material at 2428 Bath Road and anticipates hiring 40 to 66 people for the site. Among its features, the proposed agreement would provide the company with $1,000 for each full-time employee having an annual salary in excess of $35,000 (excluding benefits), plus a $500 bonus for any such full-time employee residing in Elgin. A cap is set at $66,000 under the incentive agreement.

“There clearly needs to be better information on why these incentive packages are needed and how we’ll get our return on investment,” new council member Anna Moeller said. “The public only sees the cost, and we need to present the whole picture. That needs to be provided when it comes up again for a vote.”

Moeller added that she is “still supportive of the project insofar as Sears and staff had an understanding based on past practices. I do not want to send a message to the business community that this council will be unreasonable or capricious. I think giving staff some clear guidelines on what we feel are appropriate incentives or outcomes will help with that.”