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Zion Park District in junk bond territory

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Illinois

* They’re borrowing to make debt service payments? Uh-oh…

Moody’s Investors Service has downgraded the rating on Zion Park District, IL’s general obligation (GO) debt to Ba1 from Baa3 and the rating on the district’s general obligation limited tax (GOLT) debt certificates to Ba2 from Ba1. The Ba1 rating applies to $1.9 million in outstanding general obligation (GO) alternate revenue debt and $540,000 in GOLT debt service extension base (DSEB) debt. The Ba2 rating applies to $400,000 in outstanding GOLT debt certificates.

The outlook is negative.

SUMMARY RATING RATIONALE

The Ba1 rating reflects the district’s rapidly declining tax base; limited revenue raising ability as the district is operating at property tax rate caps in almost all of its major operating funds, and narrow Operating Fund cash reserves. Also incorporated in the rating is the district’s reliance regular borrowing to support debt service payments on outstanding debt, including plans to fully leverage its debt service extension base (DSEB) to support GO alternative revenue source debt service.

The district’s Ba2 debt certificate rating reflects the lack of a dedicated property tax levy for repayment of debt service, along with the
district’s narrow liquidity position.

OUTLOOK

The negative outlook reflects our expectation that the district’s finances will remain limited, requiring regular borrowing to pay debt service
on existing debt, as well as expectations for continued, material tax base declines.

WHAT COULD MAKE THE RATING GO UP (or remove the negative outlook)

-Stabilization or growth in the district’s property tax base

-Growth in overall liquidity supported by balanced operations

-Formalized planning toward and the attainment of self supporting enterprises

-Discontinuation of the practice of borrowing to support recurring debt service on outstanding debt

WHAT COULD MAKE THE RATING GO DOWN

-Further deterioration in property tax base valuations

-Recreation Fund tax rate hitting property tax rate cap

-Erosion of operating liquidity

-Increased Enterprise Fund dependency on the General Fund

The district’s last Moody’s downgrade from exactly one year ago is here.

Hat tip: Bond Buyer.

posted by Rich Miller
Wednesday, Mar 25, 15 @ 11:59 am

Comments

I wonder if it would be better if the park district dissolved and the city took over recreational services?

Comment by nona Wednesday, Mar 25, 15 @ 12:05 pm
I didn’t know borrowing to make debt service payments was legal.

Comment by Wordslinger Wednesday, Mar 25, 15 @ 12:16 pm
Time for Shiloh Park Golf Course to up their fees. Or hey, why not privatize the park district?

Comment by Anonymous Wednesday, Mar 25, 15 @ 12:17 pm
“I didn’t know borrowing to make debt service payments was legal.”

So, they should just call it “borrowing for operating costs”, and use all of their tax revenue to make debt service? Isn’t that just form over substance?

Comment by Chris Wednesday, Mar 25, 15 @ 12:23 pm
Won’t the residents of Zion be surprised. ==The Park District owes how much?==

Comment by Formerly Known As... Wednesday, Mar 25, 15 @ 12:34 pm
Borrow for operating costs then you can levy for the bonds if your regular levy is already maxed. Unintended consequence of our laws.

Also find some humor in that local governments are supposed to have adequate reserves per the bond rating agencies yet the Gov sees those reserves as excess.

Comment by Shemp Wednesday, Mar 25, 15 @ 12:38 pm
Isn’t the official line in the Corporate Media that the economy is growing?

If government is losing ground during a “good economy”, what’s the deal?

Is the economic system rigged against state & local government? What is the mechanism of this rigging?

Comment by Carl Nyberg Wednesday, Mar 25, 15 @ 12:39 pm
“expectations for continued, material tax base declines.”

Increasing property taxes won’t solve this big, big issue and pay down the bonds.

Comment by The Anna Berg Fund Wednesday, Mar 25, 15 @ 12:40 pm
Carl Nyberg - I think the issue is that local government debt is too big for the growth in the economy that Illinois has experienced.

Comment by The Anna Berg Fund Wednesday, Mar 25, 15 @ 12:42 pm
“property tax rate caps.” We cut taxes and now we’re broke! Justice Thomas had some choice comments on that in the arguments on the pension case.

Comment by anon Wednesday, Mar 25, 15 @ 12:47 pm
The closing of the nuclear plant and diminishment of property taxes from the plant is the likely culprit.
This comment is not meant as any slight to your fine advertiser. It is just fact. Braidwood, Byron, Clinton, Dresden, LaSalle and Quad Cities taxing bodies take note. Don’t heavily rely on these taxing figures for operations or you too could go the way of Zion when the plant is shuttered.

Comment by Jake From Elwood Wednesday, Mar 25, 15 @ 12:49 pm
It should dissolve operations and only stay around administratively to pay it’s debt. The other option is a referendum to raise taxes for the district. Failing that, it should go away. The assets (property/equipment) could go back to the city to maintain for some recreational purposes. Paying debt with debt should mean you don’t even possess a credit rating i.e. “you have no credit”.

Comment by A guy Wednesday, Mar 25, 15 @ 12:56 pm
Not only closing of a nuke plant, but also I read about a revision of how nukes are assessed. Originally, all the expensive equipment was counted and assessed as part of the property. A court ruled that only the land and buildings should be taxed. The reactors, generators, transformers, etc., were excluded.

Comment by DuPage Wednesday, Mar 25, 15 @ 1:22 pm
=I wonder if it would be better if the park district dissolved and the city took over recreational services?=

I would guess no. Why would they want to take on that debt?

Comment by JS Mill Wednesday, Mar 25, 15 @ 1:49 pm
If they are borrowing to make debt service payments might it not be time to consider a chapter 9 bankruptcy?

Comment by Hit or Miss Wednesday, Mar 25, 15 @ 1:58 pm
==- A guy - Wednesday, Mar 25, 15 @ 12:56 pm:==

If some lender wants to loan to the Zion Park District, why shouldn’t they be able to? Maybe some firm sees something we all don’t. Why impede the free market?

Comment by Precinct Captain Wednesday, Mar 25, 15 @ 2:04 pm
I suspect the district is trying to hold on until Excelon fully decommissions and cleans up the nuke plant and some commercial development on the site occurs. Crap shoot at best.

Comment by Sir Reel Wednesday, Mar 25, 15 @ 2:45 pm
Interesting thought there Reel. Plausible.

Comment by A guy Wednesday, Mar 25, 15 @ 4:22 pm
Geo must be rolling over in her grave…

Comment by Anonymous Wednesday, Mar 25, 15 @ 7:14 pm
I believe all government entities utilize their DSEB to pay existing debt. Not sure what the big deal is here?

Comment by Jake Thursday, Mar 26, 15 @ 11:43 pm
The tax base is declining, yet their Rec Fund is not at its max rate? That sounds like a positive. There must be more to this story.

Comment by Steve Thursday, Mar 26, 15 @ 11:49 pm
Just the opinion of one analyst. S&P still has them “A” rated.

Comment by Angie Thursday, Mar 26, 15 @ 11:55 pm
General Motors, Ford, and Bank of America were all downgraded below investment grade at one point too, now they’re thriving. Let’s give this park district time.

Comment by Brad Friday, Mar 27, 15 @ 7:38 am
That park district is large and important in that community. Less than $3 million in bond debt and all those assets…where’s the risk?

Comment by Sue Friday, Mar 27, 15 @ 7:40 am