OREANDA-NEWS. Fitch Ratings assigns an 'AA+' rating to the following City of Evanston, Illinois (the city) unlimited tax general obligation (ULTGO) bonds:

--\\$13,885,000 general obligation (GO) corporate purpose bonds, series 2015A;
--\\$11,475,000 GO refunding bonds, series 2015B.

The bonds are scheduled for competitive sale on Oct. 21, 2015. Proceeds will be used to fund various capital improvements in the city and refund a portion of the city's outstanding series 2006B bonds.

In addition, Fitch affirms the following ratings:

--Approximately \\$136 million in outstanding GO bonds at 'AA+'.

The Rating Outlook is Stable.

SECURITY
The bonds are payable from the city's full faith and credit and its ad valorem tax without limitation as to rate or amount.

KEY RATING DRIVERS

AFFLUENT CHICAGO SUBURB: Residents display a superior socioeconomic profile as evidenced by high wealth, employment and education levels. Proximity to Chicago and Evanston's diverse economy provides abundant employment opportunities.

HEALTHY RESERVES; FINANCIAL FLEXIBILITY: The city maintains sound reserves despite recent drawdowns on fund balance. Positively, the city's home rule status provides significant financial flexibility.

PENSION CHALLENGES: Despite management's efforts to reduce the sizeable unfunded liability in the city's police and fire plans through periodic supplemental contributions, both systems are severely underfunded.

MANAGEABLE DEBT LEVEL: The aggregate debt burden is manageable and future capital needs are reasonable. Carrying costs for debt service and other long-term liabilities are moderate.

RATING SENSITIVITIES

PENSION LIABILITY: The city's continuing efforts to address its large pension liability and fully fund at or above its required pension contributions are key to rating stability.

INABILITY TO MAINTAIN SOLID RESERVES: The city's ability to maintain reserves at healthy levels and balance their operations without the use of reserves.

CREDIT PROFILE
The city is contiguous with Chicago and is approximately 13 miles from downtown. Evanston is a home rule municipality under Illinois statute, and as such it has no tax rate or debt limits, nor is it required to conduct a referendum to authorize the increase of debt or the imposition of property taxes. The 2014 estimated population of 75,658 has remained fairly steady, increasing by 1.6% since 2010.

PRIME LOCATION SUPPORTED BY EXCELLENT SOCIOECONMIC FUNDAMENTALS

In addition to abundant employment opportunities throughout the Chicago metropolitan area, the city's local economy is strong, anchored by Northwestern University, which employs about 9,500 people and educates approximately 10,000 students at its Evanston campus. Additionally, Northshore University Healthcare and St. Francis Hospital with 4,176 and 1,105 employees, respectively, provide stability.

Despite being negatively skewed by the student population (about 10%), per capita and median household income, as well as market value per capita levels are well above state and national averages. Residents are highly educated with 66% of the population attaining at least a bachelor's degree versus 29% nationally. The city's unemployment rate has historically been below those of the state and U.S. For July 2015, the city reported an unemployment rate of 5.2% compared to 5.9% and 5.6% for the state and U.S., respectively.

The city's tax base is primarily residential with Northwestern and the hospitals representing a sizeable amount of tax exempt value. After a cumulative 28% decline during the county-wide triennial reappraisal, the city's assessed value was up 1.9% in the most recent year, and further growth is likely as a result of increased home values and development activity.

HEALTHY RESERVE LEVELS

The city's revenue base is diverse with various taxes comprising approximately 42% of total general fund revenues. Property, utility and sales taxes represent approximately 14%, 9% and 19% of general fund revenues, respectively. Though Northwestern and the hospitals do not pay property taxes, they do pay permitting fees which accounted for 9% of general fund revenues in 2014.

For the year-end Dec. 31, 2014, the city recorded a \\$1.4 million (1.5% of spending) general fund operating deficit after transfers, its seventh consecutive year of deficits. The deficit was primarily a result of planned drawdowns to fund pay-go capital projects and increased public safety costs, while permitting revenue exceeded budget by almost \\$1 million. The unrestricted general fund balance totalled \\$15 million or 16.4% of spending. Fitch views positively the city council's recent approval to change its fund balance policy to a minimum of 16.6% (two months operating expenses) from 8.3% (one month operating expenses). The city's demonstrated ability to balance the budget without use of reserves is key to the current rating level.

The 2015 budget included 3.5% increase in expenditures from the 2014 budget and no general fund property tax increase. At year-end, the general fund is budgeted to have a surplus of approximately \\$750,000. The preliminary 2016 budget anticipates a 2% tax levy increase and a small surplus.

SIGNIFICANT UNFUNDED PENSION LIABILITY
The city provides pension benefits to its public safety employees through two single employer plans and a state-sponsored plan for most other employees. As of Dec. 31, 2014, both the city's police and fire pension plans remain severely underfunded at 53% and 47%, respectively, using a 6.75% discount rate. As of Dec. 31, 2014, the state plan, the Illinois Municipal Retirement Fund, was better-funded at 85% or an estimated 80% using Fitch's 7% discount rate assumption. The aggregate unfunded actuarial accrued liability for all three plans totaled \\$179 million or a sizable 2.7% of full market value.

Management has been pro-active in addressing its pension liability. Although the police and fire plans are single employer plans, benefits and employee and employer contribution rates are established by state statutes. The city has consistently exceeded the minimum employer contribution amounts and recently has exceeded the actuarially required contribution (ARC). The city also reduced the interest rate assumption from 7% to 6.75% then reduced it again to 6.5% and moved to more conservative mortality assumptions, which increases contribution levels and the reported unfunded liability. The city uses an unlimited levy to finance payments to the police and fire pension plans. This levy has increased to fund the higher pension contributions while the city's control of general fund costs has mitigated the overall levy increases.

While management continues to address the pension liability through more conservative actuarial assumptions resulting in higher contributions, this liability will continue to pressure budgetary operations. Fitch believes tangible long-term results from the city's active management of its pension liability is key to rating stability.

MANAGEABLE DEBT POSITION

Aggregate debt ratios are manageable at \\$4,287 per capita and 4.9% of full market value. Fitch expects the city's debt burden to remain manageable given rapid debt amortization (77% retired in 10 years) and moderate future borrowing.

Exposure to other post-employment benefits (OPEB) is limited as it consists of an implicit rate subsidy for retirees. The city's carrying costs inclusive of debt service, pensions and OPEB costs was a high 25% of government fund spending for 2014 as pension costs continue to increase.