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TEXT-Fitch rates Evanston, Ill. ULT GOs 'AAA', outlook stable
July 2, 2012 / 4:55 PM / 5 years ago

TEXT-Fitch rates Evanston, Ill. ULT GOs 'AAA', outlook stable

July 2 - Fitch Ratings assigns an 'AAA' rating to the following city of
Evanston, Illinois (the city) unlimited tax general obligation (ULTGO) bonds:

--$16,220,000 general obligation corporate purpose bonds, series 2012A.

The bonds are scheduled for competitive sale July 10, 2012. Proceeds will be
used for various capital improvements, refund certain outstanding series 2002C
bonds for a cost savings, and to restructure certain outstanding sewer debt to
smooth annual debt service.

In addition, Fitch affirms the following ratings:

--approximately $118 million ULTGO bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

Bonds are secured by the city's full faith and credit and its ad valorem tax
without limitation as to rate or amount.

KEY RATING DRIVERS

SUPERIOR SOCIOECONOMIC FUNDAMENTALS: Residents display a superior socioeconomic
profile reflecting high wealth, employment and education levels.

STRONG AND DIVERSE ECONOMY: Evanston's advantageous location provides abundant
employment opportunities both within the city and throughout the Chicago
metropolitan region.

HEALTHY FINANCIAL POSITION: The city maintains sound reserves despite generating
three operating deficits after transfers over the past four years.

MANAGEABLE DEBT LEVEL: The aggregate debt burden appears manageable and future
capital needs are reasonable.

SIGNIFICANT UNFUNDED PENSION LIABILITY: The unfunded pension liability is
notable, although the city has committed to funding required pension
contributions and has made periodic supplemental contributions.

WHAT COULD TRIGGER A RATING ACTION

INABILITY TO MAINTAIN BALANCED OPERATIONS: The city's ability to maintain
financial equilibrium and an acceptable financial cushion is key to the current
rating category.

FAILURE TO ADDRESS PENSION LIABILITY: The city's failure or inability to
meaningfully address its large pension liability in the intermediate term or
lack of full funding of its required pension contribution could result in
downward rating action.

CREDIT PROFILE

PRIME LOCATION SUPPORTED BY EXCELLENT SOCIOECONMIC FUNDAMENTALS

With four miles of shoreline along Lake Michigan and approximately 13 miles
north of Chicago, Evanston is advantageously located. In addition to abundant
employment opportunities throughout the Chicago metropolitan area, the city's
local economy is strong, anchored by Northwestern University, which employs over
9,000 people and educates 10,000 students. Despite being negatively skewed by
the student population, city per capita income levels are above average at 149%
and 157% of the state and national averages, respectively. Residents are highly
educated with 64% of the population attaining at least a bachelor's degree
versus 27% nationally. The city's unemployment rate declined to 6.4% as of April
2012, which was well below Cook County (9.3%), state (8.6%) and national (7.7%)
averages.

SLIGHT WEAKENING IN OPERATIONS OFFSET BY STRONG RESERVE LEVELS

Evanston's financial performance weakened slightly during the protracted
national recession due to its reliance upon several economically sensitive
revenue resources, including sales, utility surcharge, and income taxes. But
reserve levels have remained healthy. The city passed a resolution revising the
city's fiscal year to a calendar year beginning 2012 to better align the tax
levy with the budget process - 2011 was a transitional year.

On an audited basis, for the 12 months ending February 28, 2011, the city
recorded a 1.9% general fund operating surplus of $1.8 million after transfers.
The city prudently budgeted declines in economically sensitive tax revenues,
eliminated staffing positions, instituted four furlough days, and omitted raises
to re-establish fiscal balance. Expenditures spiked 9% from the year prior
almost exclusively because of a one-time early retirement incentive. The city's
total ending general fund balance as a percentage of expenditures remained
relatively flat at 23.4% ($22 million) as did the unreserved balance ratio at
15.5% ($20 million).

For the audited 10-month period March 1, 2011 to Dec. 31, 2011, the city
recorded a 5.1% general fund operating deficit ($3.6 million) after transfers.
The change in fiscal year from February end to December end contributed to
variations in some city revenues. The city implemented GASB 54, reporting an
unrestricted general fund balance (sum of committed, assigned and unassigned) of
$18.4 million.

SIGNIFICANT UNFUNDED PENSION LIABILITY

The city provides pension benefits to its public safety employees through two
single employer plans and through a state-sponsored plan for most other
employees. Fitch notes both the police and fire pension plans remain severely
underfunded at 46% (using a 7% rate of return) each as of March 2011. However,
partly as a result of the city's effort to make payments above the required
amounts, the funding ratio improved from March 2010 when it stood at 40% for
police and 42% for fire.

The aggregate unfunded actuarial accrued liability for all three plans totaled
$171 million or 1.9% of full market value. As an offsetting factor, the city
made a $4.5 million supplemental pension payment in fiscal 2009. Additionally,
recent changes in state pension funding requirements (90% required funding ratio
in thirty years instead of 100%) should help make this liability more
manageable.

Fitch believes the city's long-term willingness and ability to actively manage
and address its pension liability is key to rating stability. The city's
combined 2011 contribution to all three pension plans totaled $21 million or
22.4% of general fund expenditures. The city's other post-employment liabilities
are nominal as the city solely provides an implicit rate subsidy for retiree
healthcare.

MANAGEABLE DEBT POSITION

Overall debt ratios are manageable at $4,657 per capita and 3.9% of full market
value especially given the community's relative affluence. Maximum annual debt
service (MADS) as a percentage of general fund spending is extremely high at
24%. However, 47% of the direct debt obligation is self-supporting from various
sources including tax increment revenues, special assessments, and utility fees
and charges. The net MADs obligation is much more affordable, although still
elevated, at 16% of general fund spending.

Principal amortization is rapid with 72% repaid within 10 years. The city's
five-year capital improvement plan includes $80 million in GO debt for a host of
capital improvement projects.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's report
'Tax-Supported Rating Criteria', this action was additionally informed by
information from Creditscope, S&P/Case-Shiller Home Price Index, IHS Global
Insight, Zillow.com, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria

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