Village Refinances Taxing District Debt

The Moody's credit rating agency on Wednesday has still placed a "negative outlook" on the to the recent $5.5 million bond issue approved by the Village Board. 

The village took out a three-year, $5.5 million note to refinance portions of debt from Tax Incremental Finance districts (TIF) 6, 10 and 11. Those taxing districts include the Radisson Hotel and Main Street, Kohl's Corporation, and Wacker-Neuson. Village Manager Mark Fitzgerald said they refinanced the debt to allow incremental value to accrue over the next three years in those districts. 

TIF districts are a public and private funding mechanism to spur development in blighted parts of a community. The municipality will fund upfront costs like building demolition or road construction to encourage private investment. The municipality then repays its debt with the incremental tax value created by the new development. 

"Oftentimes you lease in the short term, pay the interest in the short-term but not the principal, and refinance once you know there is increment coming in you find long-term financing," Fitzgerald said. 

Moody's has still assigned  a "negative outlook" to the village's bond issue due in large part to the outstanding Radisson Hotel debt that matures in 2014. The "negative outlook" has been in place since Nov. 2011 when the village appointed a receivership attorney to oversee operations at the hotel. This was not a downgrade from previous bond issues since then. 

In a statement issued Wednesday, Moody's stated the village may experience levy management challenges in the near to medium future as a result of refinancing the hotel debt, but the village still has sound financial operations and reserves. 

After the sale of the bonds, the village will have $98.6 million of general obligation debt outstanding. However, Moody's still rated the village at an Aa2, which is the third highest level. 

Fitzgerald said the village will remain proactive in managing the hotel debt. He said the receivership attorney overseeing operations at the hotel is currently in discussions with several real estate brokers about purchasing the ownership-plagued hotel. He said the village would split the difference between the sale price and the outstanding hotel debt, and allow the Main Street taxing district to absorb the remaining debt. 

Fitzgerald added that there are a number of projects on the horizon along the Main Street corridor that will continue to spur incremental value, and soften the impact of the hotel debacle. However, the village is in discussions with developers and a public proposal has not been submitted at this point. 

"We’ve always said it strongly that we don’t believe (the hotel debt) will have any impact on the levy, and it will not be an impact to the taxpayers," Fitzgerald said. 

According to Moody's, a fast resolution to the hotel issue and growth in the tax base would move its bond rating up and remove the "negative outlook" attached to it borrowing.