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.