Matteson (Village of) IL -- Moody's downgrades the rating on Matteson (Village of) IL general obligation debt to Ba1 from A2 and downgrades the villages limited tax debt certificates to Ba2 from...
New York, August 15, 2012 -- Moody's Investors Service has downgraded the Village of Matteson's (IL) outstanding rated general obligation debt to Ba1 from A2, affecting $28.2 million. Concurrently, Moody's has downgraded the village's $27.4 million in General Obligation Capital Appreciation Debt Certificates (Limited Tax) to Ba2 from A3. The outlook has been revised to negative. The rating distinction between the village's general obligation unlimited tax bonds and general obligation debt certificates reflects the weaker security of the certificates, which do not benefit from a dedicated property tax levy.
SUMMARY RATINGS RATIONALE
The downgrade reflects the village's challenged local economy and rapidly deteriorating financial position. The latter includes ongoing annual operating deficits, an over reliance on inter-fund transfers, and poorly funded pension liabilities; all of which reflect a history of weak fiscal policy. The outlook on the Village of Matteson's credit is negative, reflecting our belief that the village's liquidity position will continue to remain under pressure, with extremely narrow financial operations and a continued reliance on inter-fund borrowings to fund operations in the absence of a deficit elimination plan. Improving financial operations and restoring adequate reserves will be challenging given expenditure pressures and overall weakened revenues.
- Moderately sized, albeit declining, tax base, benefitting from its close proximity to the Chicago (GO rated Aa3/negative outlook) metropolitan area
- Above average wealth levels
- Limited revenue raising ability given the lack of home rule status, compounded by potential political difficulties in increasing revenues, such as property or sales taxes, and/or making necessary budgetary cuts
- Ongoing inability to achieve structural balance in the General Fund
- Leveraged debt position related to the use of Capital Appreciation bonds (CABSs)
- Over-reliance on one-time revenue proceeds and internal advances from other funds
- Weak management practices related to overall fiscal management
- Persistent economic pressures , as evidenced by a recent decline in full valuation, elevated unemployment rates, and continued weakness in economically sensitive sales tax revenues, which is the village's largest revenue source
The outlook on the Village of Matteson is negative, reflecting our belief that the village's liquidity position will continue to remain under pressure as a result of extremely narrow financial operations and a reliance on inter-fund borrowings to fund operations. Additionally, the outlook reflects Moody's expectation that the village will be challenged to improve reserve levels given rising expenditures and weakened revenues. The negative outlook further reflects the lack of a definitive and timely recovery strategy to restore the village's financial position.
WHAT COULD MAKE THE RATING GO UP (Removal of the negative outlook)
- Structurally balanced budgets achieved through financial solutions that can carry forward to future fiscal years
- Material operating surpluses that will eliminate the deficit General fund balance position
- Demonstrated commitment to make mid-year budget adjustments as necessary to achieve structurally balanced operations
WHAT COULD MAKE THE RATING GO DOWN
- Continued operating deficits straining an already extremely narrow liquidity position
- Inability or continued unwillingness to implement a deficit elimination plan
- Continued erosion of the village's operational liquidity leading to heightened cash-flow weakness
The principal methodologies used in this rating were General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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