Moody's drops Oak Park's credit rating by a notch

Updated:

Share on Facebook
Share on Twitter
Print

By Deb Kadin

Contributing Reporter

Oak Park village government's financial challenges prompted one of two major bond rating companies to downgrade the credit rating on the village's outstanding general obligation debt.

Moody's Investors Services earlier this year lowered Oak Park's rating a notch from Aa3 to Aa2, citing several factors: the village's narrowing financial reserves and cash on hand and the condition of several enterprise operations funds, which while improving still have challenges, Moody's noted. The service also noted that Oak Park had "sizable unfunded pension liabilities and that retirement costs were increasing the share of the operating budget." 

Oak Park Village Manager Cara Pavlicek acknowledged the challenges in an interview Wednesday but said the village is directly addressing the specific problems and making slow headway.
"You never like to see that action taken," she said. "But I do not see an impact with this level of rating change. We're still within an A tier."

The action, according to David Jacobson, a spokesman for New York City-based Moody's, concluded a review that Moody's initiated on Jan. 15. The rating was based on, among other things, the village's 2012 audit.

The downgrade could make it more costly for Oak Park to borrow money, but it's hard to say if this will make it more difficult for the village to actually borrow funds if it needs to, Jacobson said. Pavlicek disagreed with those assessments. 

As of February 2014, Oak Park's outstanding debt totaled just over $90 million, Jacobson said. Approximately $79.2 million of that was in general obligation bonds. A general obligation bond is a municipal bond backed by the credit and "taxing power" of the issuing jurisdiction rather than the revenue from a given project, according to Investopedia.com. Another $11.4 million was in sales tax revenue bonds issued in 2006 for the construction of the Holley Court Parking Garage, Jacobson said.

Is this something that Oak Park should be concerned about? "Keep in mind, Oak Park's gone from the third highest credit rating we have to the fourth highest," said Jacobson. "It's significantly higher than Illinois and Chicago. It's manageable debt."

Even though the debt is seen as manageable, the village government has fiscal challenges that if not addressed could affect the village's credit rating even further, Moody's noted. Subsidizing the parking enterprise fund with general fund dollars from 2001 to 2006 quickly drained reserves. That situation has improved, albeit slowly, and parking operations are expected to be balanced this year, the report noted.

General fund cash remain low; it was at $142,000 at the close of 2012, Moody's noted. While audited figures for fiscal year 2013 have not been released, preliminary results indicate that "the general fund revenues fell short of budgeted expectation particularly in charges for services and fees," Moody's noted.

Several other enterprise funds "continue to exhibit formidable pressures," the report noted. The water fund ended fiscal year 2012 with no cash, but it is expected the $1.5 million owed to the General Fund from the Water Fund will be repaid by the end of this year. The Self Insurance Retention Fund had a deficit of $1.6 million in 2012, driven by "reserves required to be set aside for pending cases," the report noted. 

Another concern is that the village has an above-average employee pension burden, based on unfunded liabilities for firefighters, police and municipal retirement funds. Together these reported liabilities as of Dec. 31, 2012 amounted to $105.8 million, according to Moody's.

Failure to continue addressing fiscal challenges, or a weakening of financial health within the General Fund or enterprise funds "may further pressure the village's credit profile," Moody's noted.

In the report, Moody's noted that Oak Park's strengths at overcoming this issue were its large tax base located near Chicago, its affluent socio-economic profile and its home rule status, providing considerable revenue raising flexibility.

The rating would improve if the financial position and operations of enterprise funds improved significantly. The general fund balance and cash on hand also would have to show substantial and sustained improvement, according to Moody's. 

The rating could go down if, among other factors, there was a continued absence of material and sustained improvements in the village's overall reserves and liquidity. 

Pavlicek said trustees received the credit rating notice as part of their regular mail within the last week. No discussion has been teed up at this time, she said. There would be more context for this during coming budget discussions.

She said the village has taken seriously the manner in which it needs to pay attention to its overall financial health. Oak Park has resolved the parking fund by implementing a multi-year strategy to bring it back to profitability. The water rate has been challenged because of successive 25-percent rate increases from the city of Chicago. There are substantive capital needs with Oak Park being an older community. And then there are continuing unfunded mandates. 

There also have been discussion about unreserved fund balances in the general fund and the village is making good progress. The balance has grown from $1.7 million in 2011 to a projected $4.7 in 2014, Pavlicek said. It should be double that, but that won't happen overnight.

Reader Comments

33 Comments - Add Your Comment

Comment Policy

John Murtagh from Oak Park  

Posted: April 29th, 2014 5:46 PM

OP continues to lack a plan to reduce debt and that is sad and dangerous.

Bridgett from Oak Park  

Posted: April 27th, 2014 3:56 PM

@dystOPia, I've attended some of those board finance committee meetings (for FY2014). Now there's a rip-roarin' good time! Seriously though, it was helpful to (somewhat) understand the mechanics of municipal finances, and to understand the rationale of choices made by the Village Manager, the Village CFO, and the members of the Board who are on that committee. I guess that's my plug for people to attend such meetings--to understand and to hold accountable.

dystOPia from OP  

Posted: April 27th, 2014 9:00 AM

@Bridgett ? I understand, and agree, with your comments. The village is habitually late with their annual audits, CAFR, and TIF reports, so we need to focus on more immediate financial indicators. The village annual budget and the preliminary budget process which starts in July is the best time and opportunity to discuss financial indicators. Also, close monitoring of proposed budgetary changes and issued municipal bond credit ratings throughout the year is necessary.

Michael Ray Richardson  

Posted: April 26th, 2014 6:33 PM

The ship be sinking.

Bridgett from Oak Park  

Posted: April 26th, 2014 4:36 PM

@dystOPia, I'm saying it isn't surprising, since we can look back at past decisions. Like the jaw-dropping one Long Memory explains. Given Moody's timeframe the article points out, and you highlight, we won't really know the results of the current Board's direction for another two years. The first budget that the current Board approved is FY2014. Moody will use the current budget for a rating published in early 2016.

Long Memory from Oak Park  

Posted: April 26th, 2014 2:35 PM

The village would have us forget that the reason reserves were plundered for the parking fund was to cover the financial bloodletting known as the OPRF teachers parking garage. ($500K annual expenses on $5K revenues). An unconscionably irresponsible previous village board essentially 'gifted' the garage to OPRF, some say in a tit-for-tat for support of a TIF extension. Now, even as we stoopid villager are still paying it off, OPRF wants to tear it down to build a $70 million swim palace.

dystOPia from OP  

Posted: April 26th, 2014 8:09 AM

@Bridgett .... the Village's 2012 audit was completed May 28, 2013. The 2013 audit has not yet been completed. Moody's initiated their review on Jan. 15, 2014, and issued their action to downgrade on Feb 25, 2014. The basis for their downgrade to Aa3 is a steady narrowing of financial reserves over the past few years. While this may not be news per se, the downgraded credit rating is new and will may increase the interest rate for future GO bonds issued by the village.

Bridgett from Oak Park  

Posted: April 26th, 2014 1:04 AM

"The rating was based on, among other things, the village's 2012 audit." So the rating shouldn't be a surprise. This is new news about old information.

To: To New2FP  

Posted: April 25th, 2014 7:55 PM

Thanks for your concern. Nope, Double Income, No Kids. We like OP, but like a little grown up fun as well. See you at Scollville for the summer concerts.

dystOPia from OP  

Posted: April 25th, 2014 7:18 PM

Moody's Aa3 credit rating is described as being on the lower tier of 'Very Strong' credit worthiness, One more downgrade, to A1, would place it in the 'Strong' category. The last time Oak Park had a Aa3 rating was in 1998.

dystOPia from OP  

Posted: April 25th, 2014 7:08 PM

As per the Moody's report, the Aa3 GO rating "reflects a steady narrowing of financial reserves and liquidity over the past few years; challenged, though improving enterprise fund operations; a sizable tax base in the Chicago (A3 negative outlook) metropolitan area; affluent demographic profile; and manageable debt profile." Challenges were stated as ongoing negative budget variances pressuring the limited General Fund reserves, and deficit unrestricted net asset balances in enterprise funds.

Done from oak Park  

Posted: April 25th, 2014 4:05 PM

What I am also suggesting is that OP take the lead in passing legislation to put incoming village employees on a defined benefit program where OP matches any contributions up to 3% - hell, even 6%, it's got to be better than the current amount of money needed - as of a date sometime in the future. Or is OP as beholden to the unions as the rest of the state? Anyone interested in getting this on a future ballot as a referendum? We are so damn progressive - let's get it started!

Done from Oak Park  

Posted: April 25th, 2014 3:55 PM

That is absolutely not what I am saying - shame on you for taking it that way. What I am suggesting is that somewhere down the line, village management chose to take a "tax holiday" by not funding the pension liability, similar to what Springfield, Chicago and Cook County have done and has now shown up in a pension problem that will not be solved be cutting spending. I am suggesting that a forensic accounting audit be done to see when this deficit became so large and who is responsible.

OP  

Posted: April 25th, 2014 3:48 PM

There are two strategies to get our fiscal house in order a) watch expense/spending side or b) grow our way out if it. The latter is unlikely since our business development capability /strategy is lacking. That means the only choice is to restructure or cut spending. Our aspirations are far greater than current reality - and our egos (collective) wont allow us to realize it...

Jim'e'  

Posted: April 25th, 2014 3:48 PM

@ done with oak park; so, the pension liability is slightly less than one year's operating budget for the village. Seems reasonable considering the services we receive from the coppers and firefighters. But what the heck; are you saying we should stop their pensions???? Shame on you.

Done from Oak Park  

Posted: April 25th, 2014 3:34 PM

Jim'E' - regardless of who the money is owed to, it is still money that needs to be come up with from somewhere. With a population of 52,015 as of 2012 and a pension deficit of $105.8 million, each man, woman and child resident of OP owes $2,034 in order to make this fund whole. The Tribune reported at July 1, 2012 that the Village of OP had an unfunded pension liability of $94 million and a funded percentage of 57%. Somewhere, pension deposits are not being made to fulfill the pending debt.

Ticket Splitter from Oak Park  

Posted: April 25th, 2014 3:11 PM

@unfortunately: You are so right, lets all sit by and watch the Village's bond rating go down. Given that Anan made this an issue in the last election is no need to ask him to actually follow through on what he described as the single most important reason to support him. He has had majority support for every initiative put forward, he is not in a minority.

Jim'e'  

Posted: April 25th, 2014 3:05 PM

@done with oak park; the schools pension liability lies with the state, anf the vast majority of the village's pension liability is for police and fire personnel, not the civilian workforce.

Unfortunately  

Posted: April 25th, 2014 1:48 PM

@Bombshell - I suggest that you and your VMA friends consider lightening up a little regarding your political criticism of Anan. Most people know how thin-skinned you people are and that too many of your cabal of self-centered buffoons never put your toy knives away after the election. I mean, c'mon, you have 6 of the 7 voting positions on the board and had 7/7 just a short while ago - and you personally blame Anan for this?!? Yep, typical VMA tactics of immaturity - grow up!!!

Bombshell from Oak Park  

Posted: April 25th, 2014 1:11 PM

Anan may have inherited this, but he also advocated for further depletion of the Village reserves by tripling the expenditure for the Economice Development entity. Further, several new business enterprises have come to town (some very innovative), and a headline in this weeks paper was one of those opportunies went to Lombard. Where is his leadership?

Question  

Posted: April 25th, 2014 1:11 PM

Doesn't a lower rating mean higher borrowing costs (interest rates) for Oak Park, even if we are still considered a good credit risk? This seems to me to be something to be concerned about.

To: New2FP  

Posted: April 25th, 2014 12:07 PM

Have you seen the high school that FP children go to? That's a large reason why your taxes are cheaper there. If you don't plan on having children, or moving by high school age or go to private high school, then I wish you well in you new FP home.

New2FP from Oak Park  

Posted: April 25th, 2014 11:26 AM

My wife and I moved to OP one year ago. Last week we closed on a house in Forest Park. Taxes, and the tax outlook was one of the reasons.

OP  

Posted: April 25th, 2014 11:12 AM

The rating is fine - what is concerning is the change, lack of plan, continued spending against a backdrop of little real business development. These are long term issues - that need thoughtful strategy....

@Done from Oak Park  

Posted: April 25th, 2014 10:59 AM

You are so correct! This issue effects every tax payer in Oak Park and there is nothing on the horizon that looks like its going to change. The Village President waived Moody's report over his head during the last campaign promising that our collective credit rating was in peril and he was going to make this his priority. I guess Moody's didn't buy this line like the rest of us did.

Mimi Jordan from Oak Park  

Posted: April 25th, 2014 10:38 AM

The rating was downgraded TO Aa3 FROM Aa2. Both Aa3 and Aa2 signify Moody's opinion that the bond is high quality and very low credit risk, lower only than AAA. In 2012, Moody's rated OP's GO Bonds Aa2, but outlook was revised to negative, for the same reasons cited in this article. A rating outlook is "an opinion regarding the likely direction of an issuer's rating over the medium term." The negative outlook last year essentially signalled that this was coming. Anan inherited this mess.

Done from Oak Park  

Posted: April 25th, 2014 9:58 AM

And the school districts also have millions of dollars in unfunded pension liabilities also that aren't going to come from anywhere but the taxpayers. Anybody else get the feeling that when the bill comes, most won't be able to pay? I've already paid into the pensions through my taxes - I'm not interested in paying again.

Done from Oak Park  

Posted: April 25th, 2014 9:56 AM

"Another concern is that the village has an above-average employee pension burden, based on unfunded liabilities for firefighters, police and municipal retirement funds. Together these reported liabilities as of Dec. 31, 2012 amounted to $105.8 million, according to Moody's." And this should be our biggest concern. Guess who is on the hook for this also? It isn't coming from sales tax revenue. A forensic accounting investigation should be opened as to how this became such a large deficit.

Done from Oak Park  

Posted: April 25th, 2014 9:54 AM

"A general obligation bond is a municipal bond backed by the credit and "taxing power" of the issuing jurisdiction rather than the revenue from a given project, according to Investopedia.com." And by definition, guess who is on the hook for that $79.2 million in general obligation debt since it isn't coming from revenue from a project?

Simple Simon from Oak Park  

Posted: April 25th, 2014 9:03 AM

During the last local election with miserable turnout president Al Taleb promised over and over to simplistically do something about the Village's credit rating and now he has. Congratulations, another promised kept. Hey, but he has good intentions and that should be enough for everyone.

OP  

Posted: April 25th, 2014 7:40 AM

This is no suprise. OP continues to lever up our balance sheet with little cash flow generating business coming to village. We need to get back to basics.. or become Detroit.

Mary Unbehauen Rodrigo from Oak Park, Illinois  

Posted: April 24th, 2014 9:51 PM

This is sad to see. With all the talk of new pools, gymnastic centers, library facelifts among other things, the status of the village coffers underscores the need to put our money where we need it.

j walzchec from Oak Park  

Posted: April 24th, 2014 9:21 PM

Maybe a nice beauty salon or wig shop can take over La Majada, take care of that pesky lower bond rating right away, seems to be the only businesses wanting to open in OP. Or as the article said most of the debt is in the form of GO bonds, they can tax more residents and businesses out!

Hire Local for FREE!

Post help wanted ads for FREE on the our local online job board.

Click here to place your ad

Quick Links

Sign-up to get the latest news updates for Oak Park and River Forest.


            
SubscribeClassified
Photo storeContact us
Submit Letter To The Editor
Place a Classified Ad

Classified Ad