Fitch Rates Champaign, IL's $25.6MM GO Bonds 'AAA'; Outlook Stable

Fitch Ratings assigns an 'AAA' rating to the following Champaign, Illinois' general obligation (GO) bonds:

--$25.6 million series 2010, which will be sold as either tax-exempt or as taxable Build America Bonds-direct payment, to be determined at pricing.

The bonds are expected to sell competitively on March 2, 2010.

In addition, Fitch affirms approximately $80 million in outstanding GO bonds at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

-- Champaign's stable economic base is anchored by the presence of the University of Illinois and its tax base and population continue to experience growth.

-- The city's revenue stream is diverse and includes sales, property and income taxes; and the city's home-rule taxing authority augments financial flexibility.

-- Fund balance levels remain healthy, although the city remains dependent on economic sensitive revenues.

-- Strong and steady financial management is reflected in conservative budgeting, sophisticated and comprehensive internal policies, and the maintenance of solid general fund reserve levels despite sales tax declines.

-- The city's debt profile is favorable, supported by conservative internal policies.

-- While the police and fire pension liability is funded at an average level, the city amortizes its liability over a shorter period than permissible by state law; and exposure to other post-employment benefits is limited.

KEY RATING DRIVERS:

-- The city's ability to maintain healthy fund balance reserves and overall financial flexibility.

-- Protracted decline of sales tax receipts beyond current expectations.

SECURITY:

The bonds are payable from ad valorem taxes levied on all taxable property within the city without limitation as to rate or amount.

CREDIT SUMMARY:

Champaign is located about 135 miles south of Chicago, and had a 2007 special census population of 75,254, up 10% from the 2000 census population. Home of the University of Illinois's primary campus, Champaign has grown at an accelerated pace as annexations increased in recent years in tandem with residential investment and cooperative economic planning efforts with neighboring communities and the university. While tax base growth has slowed somewhat, the city's housing market remains relatively stable, with few foreclosures and continued healthy building permit activity. Although the unemployment rate has grown to 8.6% as of November 2009, up from 6.5% as of February 2009 when Fitch last reviewed, it remains below the state and national averages of 10.5% and 9.4%, respectively.

Conservative long-term planning, combined with close monitoring of revenue and expenditure growth, has sustained the city's consistently strong financial performance despite recessionary pressures. Five-year financial forecasts and monthly financial reports help guide the city's resource allocation and allow its timely response to challenging economic conditions. Nonetheless, sales tax receipts were down about 4% in fiscal 2009 from budgeted expectations, which caused a modest shortfall in the general fund. However, unreserved general fund balance resulted in a still adequate $17.6 million or 27% of spending and the city has implemented cost control and revenue generating measures to offset sales tax declines. Champaign's total general fund balance has been in excess of 20% in each of the past five years. Fitch believes this high fund balance level is key to maintaining the current rating level given that 50% of general fund revenue is derived from sales taxes, an economically sensitive and currently declining revenue source.

Champaign's policy of financing routine maintenance and even large capital projects through operating sources have kept the city's infrastructure well maintained while minimizing its debt burden. As a result, the city's direct debt equals a modest $1,072 per capita and 1.8% of market value. Issuance by the county and local school districts brings the overall debt burden to a moderate $1,746 per capita and 2.9% of market value. While pensions are funded at an adequate level, the city amortizes its outstanding police and fire liability through 2020 rather than 2033 as permitted by state law. The city's exposure to other post-employment benefits is limited, as retirees may remain in the city's plan but are responsible for 100% of their premium. The city is not planning to issue additional debt until 2011 at the earliest.

The unlimited taxing power of most local government general obligation pledges is the broadest security a U.S. local government can provide to the repayment of its long-term borrowing, and therefore is the best indicator of its overall credit quality. The average local government general obligation rating is 'AA-' with approximately 56% rated at or above 'AA-' and 7% rated 'BBB+' or below. The relatively high ratings reflect local governments' inherent strengths: the authority to levy property taxes, nonpayment of which can result in property foreclosures; additional taxing power that can include sales, utility, and income taxes; and essentiality of and lack of competition for services provided by local governments. Those with low investment-grade or below-investment-grade ratings generally have a combination of a limited or highly volatile economic base, high levels of long-term liabilities including debt and post-employment benefits, and/or unusually limited financial flexibility.

Applicable criteria available on Fitch's web site at ' www.fitchratings.com' include:

'Tax-Supported Rating Criteria,' dated Dec. 21, 2009.

'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.

Additional information is available at ' www.fitchratings.com'.

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