Fitch downgraded DuPage bond rating over home rule policy, county board member says
DuPage County board members are downplaying concerns about a nationally recognized rating service's recent decision to downgrade the county's bond rating.
"The rating is not at all alarming," Robert Larsen, the DuPage County Board District 6 representative from Wheaton, said in an email to DuPage Policy Journal. "It is disappointing, and frustrating."
That sentiment also was expressed by Tonia Khouri, the DuPage County Board District 5 representative from Aurora in her own email to the DuPage Policy Journal.
"While Fitch’s rating change for DuPage County is unfortunate, there is no reason to sound any alarms at this point," Khouri said. "It’s unlikely the score will be lowered again in the near future, as the new score is based upon changes made on Fitch’s end and not necessarily any economic or financial changes made at the DuPage County level."
Fitch Ratings Inc. is one of the three nationally recognized statistical rating organizations designated by the U.S. Securities and Exchange Commission, the other two being Moody's and Standard & Poor's. DuPage County still enjoys AAA bond ratings with Standard & Poor’s and Moody’s. Fitch's rating for DuPage County is now AA+.
"The only reason Fitch changed the rating was they decided to include in their formula whether an entity is Home Rule," James Healy, the DuPage County Board District 5 representative from Naperville, told DuPage Policy Journal. "If the entity is not home rule — and the county is not — then the highest Fitch will give us is AA+. All the other rating agencies still have DuPage at AAA."
Counties without a home rule form of government can't raise taxes on their own, Larsen said. "So, here we are, a county that has been incredibly fiscally responsible, and where we haven't raised the property tax levy in eight years," Larsen said. "What happens? We get punished for something completely outside our control, and something that has never prevented us from meeting our budgetary obligations, and protecting the interests of the taxpayers."
As defined by Fitch, a non-home rule unit clamps the amount of annual increases in property taxes within a jurisdiction. The increase is limited to the lesser of 5 percent or the percentage increase in the Consumer Price Index during the preceding calendar year.
Fitch kicked off the Labor Day weekend by issuing a statement that DuPage County's bond rating had been downgraded from AAA. This appears to be the first time in the county's history that such a downgrade has occurred.
"The downgrade reflects implementation of Fitch's revised criteria for U.S. state and local governments, which was released on April 18, 2016," the statement said. "Underlying credit factors since the time of Fitch's last review of the district are mostly stable; however, the revised criteria place increased focus on Fitch's expectations for the natural pace of revenue growth without revenue-raising measures and the ability of an entity to independently increase revenue. The downgrade reflects Fitch's concern that the county's limited revenue flexibility and slow revenue growth prospects."
Yet Fitch noted the county's ability to maintain adequate reserves.
"DuPage County has made consistent efforts to maintain a high level of available reserves during the recent economic recovery in recognition of the relatively high volatility in its sales tax revenue stream," the statement said. "Current available reserve levels are above the county's policy of maintaining at least 25 percent of expenditures plus transfers of the next year's general fund budget. Management expects fiscal year 2016 operations to be balanced despite revenue projections to decrease by $2.6 million year-over-year. To balance the budget, the county is actively reducing its cushion in certain expenditure lines. The county will budget for a slight increase in revenue in fiscal year 2017, keeping expenditures approximately the same as the current fiscal year 2016 estimated final."
DuPage County issued a one-paragraph response, saying the county's finances have not changed.
"As recently as January, Fitch Rating Services reaffirmed its AAA rating for DuPage County," the county's response said. "Since that time, Fitch implemented new rating criteria, which place a large emphasis on an entity’s independent legal ability to raise revenues, as home rule entities are empowered to do. DuPage County is a non-home rule county and has a history of living within current revenue streams and reducing expenses before raising revenues such as fees and taxes. This fiscally prudent approach has served DuPage County residents well, allowing DuPage to continue to deliver services without raising property taxes, which have remained flat for the past eight years. DuPage County remains AAA-rated by Standard & Poor’s and Moody’s. DuPage County’s bond rating status keeps it among the highest-rated counties in the nation.”
Fitch's decision was based on the rating’s service’s change in its own formula, Healy said. "It was not an 'event' or something DuPage did or did not do," he said.
Larsen said the only home rule county in the state, Cook County, is a cautionary tale, despite Fitch's apparently opinion about non-home rule counties. "Compare Cook County's fiscal situation to that of DuPage," Larsen said. "There is no comparison.They are a disaster, and we are exceptionally well-positioned"
DuPage County should stay the course, Khouri said. "As chairman of Economic Development on the DuPage County Board, I have seen first-hand how our county continues to facilitate opportunities for all of our residents to achieve economic prosperity," she said. "We’ve maintained consistent and reliable tax conditions, which has been extremely important to the success of our small businesses. This is critical, as small businesses create 62 percent of net new jobs nationwide. Our Metro West Manufacturing Workforce Collaboration is another example of the many ways in which our county has played an active part in improving the quality of life for our residents and helping them break free from poverty. Through programs like this one, we’re helping both individuals and businesses alike by providing individuals with the skills they need to earn high-paying, reliable work and by providing businesses with a workforce that is ready and able to get the job done.
DuPage County remains a thriving, business-friendly community with an environment conducive to upward mobility for individuals of all socioeconomic backgrounds, Khouri said. "The county will continue to make
financially responsible decisions that consider the well-being of all DuPage County residents and will remain focused on providing an excellent home for the people within our county lines.”
Healy said he expects no overall impact on the county from the Fitch downgrade.
"None," he said. "Because of the reason for the change, it is not expected that DuPage would have to pay more for borrowing. If there would be an increase in interest, it would be negligible."
The Fitch downgrade should prove an anomaly, Larsen said.
"Bottom line, we think the change in rating is unfair, but it is isolated," he said. "The other two ratings agencies have us rated AAA, as well they should. The rating change by Fitch should have minimal impact on DuPage, as we have never been heavily leveraged in debt. In fact, we just refinanced many of the bonds we have, saving taxpayers millions. We don't anticipate any further changes, and hope Fitch will reconsider."