OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to the following Aurora West School District No. 129, IL bonds:

--$26.47 million general obligation (GO) school building bonds, series 2016 (qualified school construction bonds).

Proceeds will fund various capital projects including school construction. The bonds will be sold via negotiation on March 23, 2016.

The Rating Outlook is Stable.

SECURITY

The GO bonds are payable from lawfully available sources and ad valorem tax levy, without limitation as to rate or amount. The certificates are limited tax general obligations of the district, payable from general funds of the district and other lawfully available sources. The bonds and certificates are additionally secured by a state aid intercept mechanism (not rated by Fitch).

KEY RATING DRIVERS

LIMITED RESERVES, OPERATING STABILITY: Although current reserves are below the district's policy level, Fitch believes management's plans to rebuild fund balance starting in fiscal 2016 are reasonable. Recent reserve drawdowns have been related to capital spending and a change in the revenue accrual period.

INCREASING CAPITAL NEEDS: Fitch expects debt levels to increase moderately as the district issues the balance of a large GO authorization. Debt service costs are expected to remain level given the structure of the debt financing plan.

MANAGEABLE PENSION PAYMENT: The district participates in Illinois Municipal Retirement Fund (IMRF) and Illinois Teachers' Retirement System (ITRS). Although ITRS funding levels are weak, the state is responsible for the majority of the annual contribution.

MIXED ECONOMIC PROFILE: District enrollment has increased marginally in recent years and modest growth is expected to continue going forward. Income levels are slightly lower than the state and national average with minimal growth. Employment levels have been improving and are on par with the state and nation.

RATING SENSITIVITIES
FURTHER RESERVE EROSION: Recent drawdowns have reduced reserves to well below the district's recently increased policy level of 10% of spending. Further deterioration of reserves, which Fitch does not expect since a planned use of funds for capital projects is complete, could result in negative rating action.

CREDIT PROFILE

The district is located approximately 40 miles west of downtown Chicago in Kane County. The district's enrollment grew a modest 0.3% in the current school year reaching 12,627 students. Historically, enrollment and population growth have been modest and the district expects continued modest enrollment growth going forward.

MIXED SOCIEOECONOMIC INDICATORS

The district's economy reflects a sizable manufacturing presence. Caterpillar, Inc. (IDR rated 'A'/Outlook Stable) is the largest employer with 2,300 staff. December 2015 unemployment for the city of Aurora was 5.9%, slightly below the state average of 6.0%. The city's employment levels increased modestly in December 2015 from December 2014. Income and wealth levels are on par with the state and nation.

Assessed valuation (AV) declined by 0.3% in 2014 but the district estimates AV will increase by 5% in 2015 due to increasing housing values.

OPERATING STABILITY DESPITE DECLINE IN RESERVES

The district has experienced some recent deficits due to non-recurring items related to an accounting adjustment and capital transfers.

Fiscal 2015 ended with a general fund deficit of $4.4 million (2.8% of spending) due to a transfer to the district's operations and maintenance fund. In 2010, the district issued $12 million in GO limited tax bonds to increase the district's working cash fund (within the general fund) in order to finance capital projects. Of the total issuance, $5 million was transferred between fiscal years 2012 - 2014 with the remaining $6.8 million transferred in 2015. Fiscal 2015 marked the last year of these one-time transfers for capital. The transfer produced a planned decline in the unrestricted reserve to $9.2 million or 6.3% of operating expenditures in fiscal 2015. Absent this transfer, the district had an operating surplus of $2.7 million.

The fiscal 2016 budget was balanced, and current estimates indicate a $700,000 positive budgetary variance due to conservatively budgeted state aid and expenditure controls. The district recognized significant operational savings by hiring maintenance service staff and eliminating contract service costs. Given management's ongoing cost control efforts, the district assumes a balanced preliminary budget for fiscal 2017.

MANAGEABLE LONG-TERM DEBT AND PENSIONS

The district's overall debt is manageable at $2,746 per capita and 5.4% of market value. Principal amortization is rapid at 68.8% in 10 years. Annual carrying costs (sum of debt service, pension, and other post-employment benefits but consisting mainly of debt service) are low at 9.7% of 2015 total governmental spending). Carrying costs should remain manageable despite the expectation of additional debt issuance.

The current offering is part of a voter-approved $84.2 million referendum to fund capital improvements including energy efficient systems, classroom additions and a new elementary school. The overall debt burden is expected to increase moderately given the district plans to issue the remaining $25.47 million over the next two years. The overall debt financing plan is structured to maintain the debt service levy at current levels. Additionally, the district received a $26.5 million Qualified School Construction Bond allocation which will reduce future debt service payments.

The district participates in the Illinois Municipal Retirement Fund (IMRF), an agent multiple employer system, as well as the Illinois Teachers' Retirement System (ITRS), a cost-sharing multiple employer system to which the state makes most payments on behalf of the district. The district covers the employees' portion of pension payments. For its IMRF obligation, the reported ratio of assets to liabilities is 74.2%. IMRF benefits and contributions are determined by the state, and state statute requires actuarial contributions. For ITRS, system-wide fiduciary net assets cover only 43% of total pension liabilities. The state is responsible for the vast majority of the district's ITRS liability, with the district carrying only a small portion of this liability.