OREANDA-NEWS. Fitch Ratings has assigned an 'AA' rating to the following Romeoville Village, IL unlimited tax general obligation bonds:

--$5.125 million general obligation refunding bonds, series 2016A.

The bonds are scheduled for competitive sale on August 22. Proceeds will refund outstanding debt for present value savings.

Fitch also upgrades the following Romeoville Village, IL ratings to 'AA' from 'AA-':

--Issuer Default Rating (IDR);

--approximately $91 million outstanding ULTGO bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the village, payable from an ad valorem tax on all taxable property without limitation as to rate or amount.

KEY RATING DRIVERS

The upgrade to 'AA' for the IDR and GO bonds reflects application of Fitch's revised criteria for U. S. state and local governments, which was released on April 18, 2016, and a more focused consideration of economic factors. The rating reflects the city's favorable revenue framework, moderate fixed costs and long-term liability burden, and demonstrated financial resilience during economic downturns.

Economic Resource Base

Romeoville is located in Will County (rated 'AA+'), approximately 32 miles southwest of downtown Chicago and nine miles north of Joliet, and serves as a commercial distribution center for the metropolitan area. Wealth levels are below county and state averages, but provide adequate support for governmental funding.

Revenue Framework: 'aa' factor assessment

The village's home rule status affords it access to a variety of taxes and fees for revenue-raising options, many of which are without legal limitations. Growth prospects for revenue are solid, tempered by the risk associated with tax base concentration.

Expenditure Framework: 'aa' factor assessment

Fitch expects the natural pace of spending growth to be in line with the natural revenue growth. Expenditure flexibility is solid and carrying costs are moderate.

Long-Term Liability Burden: 'aa' factor assessment

The long-term liability is moderate when measured against the resource base, at 18.1% of personal income.

Operating Performance: 'aaa' factor assessment

The village's ample reserves and superior budget flexibility provide exceptionally strong gap-closing ability to withstand economic downturns.

RATING SENSITIVITIES

Concentration Risk: A significant reduction in Citgo operations in Romeoville that adversely affects the economy and governmental revenues could cause a downgrade.

Moderate Long-term Liabilities: Substantially increased borrowing by the village or overlapping entities, while not anticipated, could put negative pressure on the rating.

CREDIT PROFILE

The village's population grew almost 90% from 2000 to 2010, primarily from annexation and new development, but growth has slowed in recent years. The proximity to three major interstate highways (I-55, I-80, and I-355) has led the village to become a commercial distribution center for the southern Chicago metropolitan area. In May 2016 the village recorded a 6.0% unemployment rate, slightly lower than the 6.5% a year earlier. The rate was the same as the state's rate and higher than the national rate of 5.1%. Typical of Illinois municipalities, recovery in the tax base has lagged the rest of the nation. Equalized assessed valuation (EAV) returned to growth with modest gains recorded the past two years.

Revenue Framework

General fund revenues are mainly comprised of property, sales, and other taxes. In fiscal 2015, property taxes represented 21%, and sales, income and other taxes accounted for 53% of general fund revenues. The village's reliance on sales and income taxes makes the revenue stream somewhat vulnerable to economic variability; however, the village typically responds to revenue declines by raising offsetting revenues.

Growth prospects for revenues are solid, with historical growth well exceeding both inflation and national GDP, even after adjusting for revenue-raising policy action. Continued strong growth is likely, given economic trends; however, the highly concentrated tax base presents an additional risk. The top 10 taxpayers account for 23% of EAV and the top payer, PDV Midwest Refining (Citgo), accounts for 12% alone.

The village has ample independent legal ability to raise revenues. As a home rule entity under Illinois law, it has access to a broad array of taxes and fees, many of which do not have a legal limit.

Expenditure Framework

Approximately 45% of spending is for public safety, followed by 25% for general government and 20% for public works. The village typically spends 5%-15% of its budget on paygo capital.

The natural pace of spending growth should remain comfortably in line with revenue growth given underlying economic trends.

The village maintains solid expenditure-cutting flexibility, supported by the inclusion of discretionary items in the operating budget and moderate carrying costs for debt service, pension and other post-employment benefits (OPEB) at about 20% of governmental spending. The village's labor relations are satisfactory, with contractual agreements typically reached by negotiation, without resorting to strikes or arbitration.

Long-Term Liability Burden

The long-term liability burden for direct and overlapping debt and unfunded pension liabilities is moderate at 18.1% of personal income. Fitch expects the long-term liability ratio to remain relatively stable, given the village's modest capital needs, although borrowing by overlapping entities is difficult to predict and could drive it higher.

Direct debt accounts for almost half of the long-term liability. Amortization of direct debt is moderate with 46% of total principal, including full accreted value of capital appreciation bonds (CABs), retired within 10 years. The CABs begin payment in 2021. Future borrowing plans are modest given the substantial use of paygo for capital.

Unfunded pensions represent a small portion of the liability. The village participates in three pension plans, and fully funds the actuarially-based contribution for all three. The police and fire plans' GASB 68 ratios of assets to liabilities are 63% and 98%, respectively, as of the April 30, 2015 measurement date. Both plans use a 7% return assumption. All other employees participate in the Illinois Municipal Retirement Fund, a state-managed agent multi-employer plan. The village's portion is 74% funded as of the Dec. 31, 2014 actuarial valuation date using a 7.5% investment return assumption, or an estimated 70% funded when adjusted by Fitch to reflect a more conservative 7% investment return assumption.

Operating Performance

The village home-rule revenue-raising power and solid expenditure flexibility combine with its solid reserve levels to provide ample capacity to close recessionary revenue gaps. Fitch expects that the village would be somewhat more vulnerable to revenue declines in a downturn than is suggested by Fitch's FAST model, which does not correct for the offsetting policy actions the village has taken during prior recessions. Fitch expects that in a downturn scenario, some use of reserves might be necessary in the short term, but that the village would employ its revenue and/or expenditure-cutting flexibility to maintain sufficient financial flexibility throughout the economic cycle.

The village budgets conservatively and has maintained strong reserves as protection against future cyclical revenue declines. In addition to fully funding its pension actuarially-based contributions the village also meets or exceeds its actuarially-based OPEB payment.