OREANDA-NEWS. February 29, 2016. Fitch Ratings assigns an 'AAA' rating to the following Normal, Illinois (the town) bonds:

--\\$8.54 million general obligation (GO) refunding bonds, series 2016A;
--\\$8.83 million GO bonds, series 2016B.

The 2016A bonds are expected to price the week of Feb. 29. Proceeds will refund most of the series 2006 bonds. The 2016B bonds are expected to price the week of March 14 and will finance capital projects including a new fire station and a portion of the town's contribution to an economic development project.

Fitch affirms the following town debt at 'AAA':

--\\$83.975 million in outstanding GO bonds.

Fitch has withdrawn the 'AAA' rating on the GO refunding bonds series 2010B as the bonds were not issued.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from the town's full faith and credit and unlimited ad valorem taxing authority.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE & FLEXIBILITY: The town's financial profile is marked by a history of stable operating margins, conservative multi-year planning, and considerable fund balances. The town's home-rule status provides broad revenue-raising flexibility.

STABLE ECONOMY: The town's economy is stable, showing growth through the recent recession and is anchored by the insurance and higher education sectors.

PENSION AND DEBT PRESSURES: Debt levels are elevated and amortization is slow. Pensions are somewhat underfunded although the town consistently pays its actuarially-based annual required contributions.

RATING SENSITIVITIES
WEAKENED LONG-TERM LIABILITY PROFILE: An increase in long-term liabilities, including a weakening of pension funding levels or sizable additional debt issuances, could result in downward rating pressure.

CREDIT PROFILE

Normal is located in central Illinois, approximately 130 miles from Chicago. The local economy is anchored by State Farm Insurance, which is headquartered in neighboring Bloomington, and four universities, the largest being Illinois State University (with a student population estimated at 20,788 for fall 2015).

CONSERVATIVE MANAGEMENT; STRONG FINANCIAL FLEXIBILITY

The town's long-term and conservative financial planning practices as well as the revenue flexibility conferred by its home-rule status have resulted in positive operating margins and consistently high fund balance levels. The town has a high degree of revenue-raising flexibility, somewhat offsetting concerns about the potential economic sensitivity of the town's primary revenue sources -- local sales/use/liquor/food & beverage taxes and state shared sales and income taxes. These sources combined represent half of general fund revenues in fiscal 2015. The town recently increased its local sales tax by 1% and is setting aside a quarter of the increase for mental health services that are provided by McLean County.

Fiscal 2015 (year-end March 31) ended with a \\$1.3 million (2.2% of spending) general fund net operating deficit after transfers, resulting in an unrestricted general fund balance of \\$23.9 million or a high 41.7% of general fund spending.

Year to date fiscal 2016 results suggest the general fund will end with a \\$1.3 million net operating surplus. Growth in the sales tax has been more modest than originally budgeted for, primarily due to lower gasoline prices, but this has been offset by larger than expected gains in income and food and beverage taxes.

The town's fiscal 2017 budget has not yet been introduced, but management expects it to feature a small surplus. The budget will reflect some new revenue line items, including a 4 cent per gallon local gas tax, and will continue the town's practice of including a 1% contingency on the expenditure side.

STABLE ECONOMIC PROFILE

The town experienced healthy population growth of 15.6% between 2000 and 2010. The town's December 2015 unemployment rate of 5.2% is below the state average (5.9%) but above the national average (4.8%). Wealth levels are below average, likely skewed by the town's large student population.

The town's equalized assessed value (EAV) was consistently growing until it experienced a modest cumulative decline of 1.3% between 2011 and 2013. EAV returned to growth with a 1% increase in 2014. Officials anticipate slightly increasing EAV going forward, as building permits and home prices are trending upward. Home prices have risen 5.1% over the past year, according to Zillow.com.

The town takes an active role in economic development and much of the projected growth is located within tax increment districts. The town's development of Uptown, highlighted by a new multi-modal transportation center, has spurred business growth as well. State Farm's full time work force has remained relatively steady, with no future changes expected. Mitsubishi has announced it will close its Normal plant in May, which may have a marginal effect on unemployment. Direct revenue impact on the town will be minimal as the plant generates approximately \\$100 thousand in utility taxes and \\$50 thousand in property taxes annually.

ELEVATED DEBT LEVELS

The town's overall debt is moderate at \\$3,219 per capita but high at 6.9% of market value, underscoring the below average market value per capita of \\$47,000. Amortization is slow at 35.5% in 10 years. Additional debt plans are manageable.

The town offers three pension plans to employees. The town's regular (non-public safety) employees are covered by a defined benefit agent multi-employer plan offered through the Illinois Municipal Retirement Fund (IMRF). The IMRF plan is 82% funded, or an estimated 78% funded when adjusted by Fitch to reflect a 7% investment rate of return. The town also has single-employer police and fire pensions, both of which are less well funded. The police plan reports a 55% ratio of plan assets to liabilities, using a 6.75% return assumption. The firefighter's plan reports a 57% ratio of plan assets to liabilities, also using a 6.75% return assumption. Those two plans combined have a net pension liability of \\$46.9 million, which, when combined with the \\$14.4 million unfunded accrued actuarial liability for the IMRF plan, represents 2.4% of market value.

The town has taken steps to improve funding for the police and fire plans, lowering the return assumption and setting a goal of 100% funding level by 2040, which is more conservative than the state minimum 90% by 2040. The town consistently makes its actuarially based annual required contribution for all plans.

The town funds other post-employment benefits (OPEB) on a pay-go basis. The plan's unfunded actuarially accrued liability was a significant 1.6% of 2014 market value. Total carrying costs for the town's pensions, debt and OPEB are a manageable 15.6% of government fund expenditures, although these costs may increase as the town continues efforts to improve pension funding.