Normal’s credit rating

By:  Diane Benjamin

Moodys doesn’t have Normal at a AAA credit rating.  Their rating is still really good – AA1.  (Bloomington is AA2).  I can’t post link because an account needs to be created, you can create on for free at

Fitch rating services have a different story – Their rating for Normal is AAA, but you need to read why.  All the rest of this article is from Fitch.  Normal’s credit rating is AAA largely because under Home Rule they can tax you to death!


See Bloomington’s Fitch outlook here:


The ‘AAA’ rating reflects the town’s unlimited legal ability to raise revenues and solid expenditure flexibility, which support its solid financial position and capacity to maintain financial flexibility throughout downturns. The long-term liability burden is moderate.

Economic Resource Base
Normal is located in central Illinois, approximately 130 miles from Chicago. The local economy is anchored by State Farm Insurance, which is headquartered in neighboring Bloomington, and four universities, the largest being Illinois State University (with a student population estimated at 20,788 for fall 2015).


Revenue Framework: ‘aaa’
Fitch expects revenue growth will be solid and the town’s home rule authority provides broad revenue-raising power.

Expenditure Framework: ‘aa’
Fitch expects the natural pace of expenditure growth to be marginally above that of revenues. Capacity to cut expenditures, if necessary, is solid.

Long-Term Liability Burden: ‘aa’
The long-term liability burden is moderate relative to the resource base, with adjusted unfunded pensions and overall debt about 14% of personal income.

Operating Performance: ‘aaa’
Ample reserves and superior budgetary flexibility provide the highest level of gap-closing capacity relative to expected revenue volatility. Conservative budgeting and policies promote financial flexibility throughout economic cycles.


Continued Revenue Weakness: The ‘AAA’ rating is sensitive to further slowing of revenue growth, which could lead to a downgrade of the rating.


The town experienced healthy population growth between 2000 and 2010, although growth has slowed to 3.4% from 2010 to 2016. Wealth levels are below average, likely skewed by the town’s large student population. The town’s equalized assessed value (EAV) experienced a modest cumulative decline of 1.3% between 2011 and 2013 and begun to grow again in recent years.

The town takes an active role in economic development and much of the projected growth is located within tax increment districts. The town’s development of Uptown Station, highlighted by a new multi-modal transportation center, has spurred business growth as well. State Farm’s full-time work force has remained relatively steady, with no future changes expected. Mitsubishi closed its Normal plant in May, but the employment loss should be largely replaced by a new manufacturer that has acquired that space and is currently increasing employment. The town expects that much of the lost Mitsubishi plant employment should be replaced by 2024.

Revenue Framework
General fund revenues are mainly comprised of property, sales, income and other taxes. In fiscal 2017, property taxes represented 12% and other taxes 65% of general fund revenues.

The town began to experience weakness in several of its revenue streams in fiscal 2018. AV grew by 3.1% last year, but the town expects only about 0.5% growth this year. The town is projecting only 1% growth in fiscal 2019 and only 1.5% annually after that, less than the 2% annual growth over the past ten years. Sales tax growth has also been slow as the town only expects 1% growth in the next couple of years. Utility tax revenue is projected to decline this year due to fewer cable and cellular phone customers and the town’s share of the state income tax is also projected to slow due to slower growth in the town’s population. Fitch expects growth in revenue through an economic cycle to be below U.S. economic performance but above the level of inflation as the town’s economic development projects, including fully replacing the lost Mitsubishi plant employment, begin to support higher growth rates in the underlying property, sales, and income tax base. Revenue growth below those expectations will put negative pressure on the rating.

The town has ample independent legal ability to raise revenues. As a home rule entity under Illinois law, it has access to a broad array of taxes and fees, many of which do not have a legal limit.

Expenditure Framework
Public safety comprises 42% of general fund spending, followed by general government at 19%, culture and recreation at 16% and public works at 13%.

The natural pace of spending growth should be in line with or marginally above revenue growth, which Fitch expects to be below GDP growth, but above inflationary growth. Costs are largely driven by salary and fringe benefit increases. Fitch expects that salary increases will approximate inflationary growth, but that fringe benefit increases may be higher, driven by more rapidly increasing pension and healthcare costs.

The town maintains solid expenditure-cutting flexibility, supported by the inclusion of discretionary items in the operating budget (vehicle purchases, maintenance, and pay-go capital, which combine to equal 16% of general fund spending) and moderate carrying costs for debt service, pension and other post-employment benefits (OPEB) at 15% of governmental spending. Only public safety employees are represented by unions and have contractual agreements typically reached by negotiation without resorting to arbitration.

Long-Term Liability Burden
The town’s long-term liability burden is moderate with Fitch-adjusted unfunded pensions plus overall debt at about 14% of personal income. Direct debt accounts for approximately 32% of the liability. Amortization is slow at 36% in 10 years. Despite this, Fitch expects the long-term liability burden and carrying costs to remain moderate due to only small new debt issuance plans to reconfigure the town’s fire stations and build a pedestrian underpass. Around 30% of the liability relates to overlapping debt.

Approximately 38% of the liability relates to the Fitch-adjusted unfunded pension liability. The town offers three pension plans to employees. The town’s regular (non-public safety) employees are covered by a defined benefit agent multi-employer plan offered through the Illinois Municipal Retirement Fund (IMRF). In aggregate, the three plans are funded at a Fitch-adjusted 56% ratio of assets to liabilities with a $105 million liability assuming a 6% rate of return.

The town has taken steps to improve funding for the police and fire plans, lowering the return assumption to 6.75% and setting a goal of a 100% funding level by 2040, which is more conservative than the state minimum 90% by 2040 that was implemented in 2011. The town has consistently made its actuarially-based annual required contribution with that goal in mind starting in 2011 and is considering further lowering of the investment return assumption.

The town funds other post-employment benefits (OPEB) on a pay-go basis. The plan’s unfunded actuarially accrued liability represented an additional 2% of personal income in 2017.

Operating Performance
The town’s home rule ability to raise revenues and solid expenditure flexibility combine with its solid reserve levels to provide exceptional capacity to close recessionary revenue gaps. Fitch expects that the town would be somewhat more vulnerable to revenue declines in a downturn than the minimal volatility suggested by Fitch’s FAST model, which does not correct for the offsetting policy actions the town has taken during prior recessions, but that such declines would be still be modest. Fitch expects that in a downturn, some use of reserves might be necessary in the short term, but that the town would employ its revenue-raising and/or expenditure-cutting flexibility to maintain sufficient financial flexibility throughout the economic cycle.

The town budgets conservatively and has maintained strong reserves as protection against future cyclical revenue declines. The commitment to fund its public safety pensions at 100% by 2040 instead of the required 90% also promotes financial flexibility. While the town’s weakening revenue profile originally led to a projected $2.3 million deficit in fiscal 2018; the town narrowed that to only $1.6 million projected through mid-year expenditure cuts. These moves, including eliminating 24 positions and cutting 10 programs, have led to the town projecting balanced operations over the next five years starting in fiscal 2019 despite lower revenue forecasts.


7 thoughts on “Normal’s credit rating

  1. And yet its police and firefighters pensions are only 50% and 52% funded (a funding rate virtually all economists characterize as dangerously low). In 2016 Normal was at risk of a state tax revenue intercept by the state comptroller because it failed to make the minimum contribution mandated by law to these pension funds. Does that sound like the behavior of a AA1 rated municipality?


  2. My projection based on the continued decline of State Farm and enrollment declines at ISU is: Next year continue revenue decline causing further spending cuts and stimulating the need to find new revenue (taxes). Second year there will be layoffs and service cutbacks and the continued need for more revenue (taxes). Year three the financial crisis begins in earnest – payment obligations can no longer be met with revenue – more taxes are no longer an option so layoffs and the elimination/consolidation of many departments will be necessary. By year five.. Normal will go into default on its Upscale Normal debt.


    1. Those events will happen, but perhaps not in the time frame you mention. I think you underestimate the willingness of the political class to levy huge new tax increases. One thing is for certain….the Town will become unlivable in the next 5 years due to taxation.

      Liked by 2 people

      1. You may be correct about taxes… but we need to factor in population decline in the coming scenario…. fewer people being taxed more multiplies the effect… and there will be a breaking point…. what that looks like? I don’t know… As State Farm draws down it’s huge workforce there will be a ripple effect in service and support jobs. There will be few if any jobs to replace the ones lost… low wage people will exit the area and take their tax revenue with them. Yes, the ability of our elite to be removed from the reality of us “common folks” is very much alive and well. And they very well may try to tax their way out of the financial crisis for awhile. Whatever the outcome… it is not going to be pretty.


  3. Lawrence, add to that the massive crime wave that the influence of groups like Black Lives Matter and Antifa promote. Blm-Nl are going to become very dangerous places.


    1. Yes, crime is going to continue and get worse. This is just the beginning. It is the beginning of the end of Bloomington-Normal as we knew it. Our nice little towns are gone forever….


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s