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Fitch Rates Normal, IL's $9.8MM GOs 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AAA' rating to the following Normal, Illinois (the town) bonds:

--$9,790,000 general obligation (GO) refunding bonds, series 2012.

The bonds are expected to price the week of Oct. 8. Proceeds will advance refund various maturities of the town's outstanding 2004 series bonds.

In addition, Fitch affirms the following town debt at 'AAA':

--$78,940,000 in outstanding GO bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by 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 financial margins, conservative multi-year planning, and considerable fund balances. The town's home-rule status provides revenue-raising flexibility, as demonstrated by the increase of a local sales tax in 2010.

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

MANAGEABLE DEBT AND LONG-TERM LIABILITIES: The town's debt is affordable and benefits from continued pay-as-you-go capital spending. Pensions are slightly underfunded and other post-employment benefits are well-managed.

CREDIT PROFILE

CONSERVATIVE MANAGEMENT; STRONG BALANCE SHEET

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 consistently high fund balance levels, with fiscal 2012 (year end March 31) representing a record high unrestricted fund balance (committed, assigned and unassigned per GASB 54) of $22.7 million or 47% of general fund spending.

Fiscal 2011 showed strong positive financial performance due largely to conservative budgeting of economically sensitive revenues and a mid-year 0.25% increase in a home-rule sales tax. Positive financial margins resulted in an addition of $3.8 million to fund balance (8.2% of spending). Fiscal 2012 performance was also largely driven by conservative budgeting, strong sales and income tax performance, and cost savings in seasonal expenditures and public safety. The result was another $3.7 million (7.5% of spending) added to an already healthy fund balance.

The town's 2013 budget is balanced and increases expenditures 5.8% year-over-year ($2.3 million); this increase is driven largely by salary and benefit changes. The town has a high degree of revenue diversity, somewhat offsetting concerns about the economic sensitivity of the town's primary revenue sources -- local and state sales taxes and state shared income taxes. These sources combined represent 26% of projected revenues in fiscal 2013. Year-to-date performance of income tax has been strong, while sales tax is slightly soft in comparison to budget.

STABLE ECONOMIC PROFILE

Normal is located in central Illinois in McLean County in the Bloomington-Normal MSA, approximately 130 miles from Chicago. The local economy is anchored by State Farm Insurance, which is headquartered in neighboring Bloomington (Fitch IDR of 'AA+', with a Stable Outlook), and four universities, the largest being Illinois State University (with a student population estimated at 21,080 for fall 2012).

The town experienced healthy population growth of 15.6% between 2000 and 2010. Despite a marginal year-on-year increase in the town's July unemployment rate (up to 8.2% in 2012 from 7.9% in 2011), the rate remains below state (9.3%) and national (8.6%) averages, consistent with long-term trends.

The town's tax base continues to show good annual growth (1.9% increase for fiscal 2012) and a healthy 3.7% compound annual growth over the past five years. Notably, Mitsubishi has recently invested $45 million in its Outlander vehicle plant in the town. The town's redevelopment of its historic Uptown district is complete, and consists of a hotel and conference center and multi-modal transportation center.

MANAGEABLE DEBT AND LONG-TERM LIABILITIES

Proceeds from this sale will refund the town's series 2004 bonds, with an anticipated aggregate present value savings of 20% anticipated to be taken over the next five or six years with no extension of maturities. The town's overall debt is moderate at $3,503 per capita and an elevated 7.6% of market value, underlining the below-average market value per capita ($46,000).

The town's debt profile benefits from continued pay-as-you-go capital financing of $4.2 million in 2012. A substantial portion of this capital investment is paid from general fund sources ($2.5 million in 2012 or 5.1% of general fund spending), representing additional budgetary flexibility. Further, the town's water/sewer system pays approximately 10% of its GO debt. Fitch expects the town's debt to remain affordable given its limited borrowing plans; however, the town's slow amortization of 31% in 10 years enhances risks associated with unforeseen borrowing.

The town's general fund pension cost is budgeted at a modest 8.7% of 2013 general fund spending. The town participates in the Illinois Municipal Retirement Fund (IMRF), which is slightly underfunded at 64% (based on a Fitch-adjusted 7% rate of return assumption), and has single-employer police and fire pensions, both of which are underfunded at between 60% and 70%. The plans' actuarial underfunding may represent a source of future budget pressure, despite the town's payments of statutorily required annual payment to IMRF and payments in excess of the actuarially required payments to the police and fire plans.

The town's OPEB liability is limited to an implicit rate subsidy. Its unfunded actuarially accrued liability was 1.1% of fiscal 2012 market value and the town budgeted a minimal 0.6% of spending for retiree benefits in fiscal 2013.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

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, and IHS Global Insight.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Fitch Ratings
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Stephen Friday
Analyst
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Fitch, Inc.
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Secondary Analyst
Eric Friedman
Director
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Steven Murray
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Source: Fitch Ratings