Friday, July 27, 2012

July 27 - Fitch Ratings has affirmed the 'AA-' rating for $3.7 billion of
Cook County, IL (the county} general obligation bonds.

The Rating Outlook is Negative.

SECURITY
The GO bonds carry the county's full faith and credit and ad valorem tax pledge,
without limitation as to rate or amount.

KEY RATING DRIVERS

NEGATIVE OUTLOOK: The Negative Outlook reflects Fitch's concern that spending
pressures coupled with reliance on economically sensitive taxes will continue to
strain the county's ability to achieve structural balance and build reserves in
the intermediate term.

CHALLENGING FINANCIAL PROSPECTS: The county is projecting budgetary structural
imbalance for the next several fiscal years, although the projected gaps are
smaller than those previously projected; the county projects it will
successfully close the gap in fiscal 2012.

REGIONAL ECONOMIC HUB: Cook County is the economic and cultural hub for the
Midwest region.

RESTORED LIQUIDITY: Liquidity was restored via bond proceeds last year, as the
county reimbursed the general fund for accumulated judgment and self-insurance
losses.

NOTABLE OBLIGATIONS: The overall debt burden is moderate; however, pension
liabilities are notable, and annual funding remains significantly lower than
actuarial funding requirements.

WHAT COULD TRIGGER A RATING ACTION

PERSISTENT STRUCTURAL IMBALANCE: Management's inability to restore structural
financial equilibrium and preserve acceptable fund balance levels;

MOUNTING FIXED COSTS: Management's inability to develop a realistic plan to
address mounting fixed costs, including pensions.

CREDIT PROFILE

Cook County, the second largest county in the nation with 5.2 million residents,
serves as the economic and cultural center for the Chicago metropolitan region.
The city of Chicago, which is located within the county, accounts for roughly
50% of the county's total assessed valuation and population. Socioeconomic
indicators are mixed with above-average per capita income and educational levels
but also elevated individual poverty and unemployment rates. As of May 2012, the
county's unemployment rate of 9% remained above both the state (8.4%) and
national (7.9%) averages but showed marked improvement over the 10.6% recorded a
year prior.

STRONG ECONOMIC BASE

Cook County, and in particular the city of Chicago, acts as the economic engine
for the Midwest region. Residents are afforded abundant employment opportunities
within this deep and diverse regional economy. The county also benefits from an
extensive infrastructure network, including a vast rail system, which supports
continued growth. The employment base is represented by all major sectors with
concentrations in the wholesale trade, professional and business services and
financial sectors.

SALES TAX ROLLBACK

The county is in the process of rolling back the rate for its sales tax, which
represents a significant portion of the revenue stream. The home rule sales tax
was increased 1% to 1.75% in July 2008 to fortify the county's budget. The new
county administration rolled back the sales tax to 1.25% effective July 2010
through December 2011, which cost the county $32 million in fiscal 2010. Per a
county ordinance, the sales tax is scheduled to be rolled back further, to 1%
through December 2012, and then to 0.75% thereafter. Year-over-year sales tax
revenues are projected to drop 9% in fiscal 2012, reflective of the roll-back,
tempered by moderate underlying increase in sales tax activity.

The county plans to issue bonds backed by its sales tax revenue, but Fitch does
not expect such borrowing to significantly impact the amount of revenue
available for operations, as the bonds will fund projects previously funded on a
pay-go basis from motor fuel tax proceeds, freeing up those revenues for
operations.

RECENT IMPROVEMENT AMID PERSISTENT FINANCIAL CHALLENGES

The county, as a home rule municipality, has the flexibility to levy a host of
local sales and sin taxes. However, since Cook County already has a relatively
high sales tax rate and is currently rolling back its sales tax, increasing
taxes to the extent necessary to materially impact revenues would likely be
politically unpopular and unrealistic. Sales tax account for 20% of general fund
revenues in fiscal 2012, down from 32% in fiscal 2010. Other notable sources of
revenue are fees & licenses at 40%, property tax at 15%.

Financial operations have been continuously weakening since fiscal 2006 when the
unreserved general fund balance equaled a healthy 20% ($259.5 million) of
spending. The unreserved general fund balance dropped to a very low 2.3% ($30.8
million) of spending by fiscal 2010.

The fiscal 2011 budget process began with a $487 million general fund forecast
gap primarily attributable to a $161 million reduction in sale tax revenues due
to full-year impact of the roll back. The gap was fully addressed with some
structural solutions including staffing and operational reductions and enhanced
revenue collections and from one-time sources including debt restructuring, a
line of credit (for a one-time cost), and other nonrecurring revenues.

The county ended fiscal 2011 with a net operating surplus (after transfers) of
$136 million, largely attributable to the aforementioned one-time sources.
Year-end liquidity was restored to adequate levels of almost two months of
expenditures, up from a slim three days in fiscal 2010, and the unrestricted
general fund balance (the sum of the unassigned, assigned, and committed fund
balance under GASB 54) climbed to a much healthier $197.1 million or 13.8% of
expenditures and transfers out. Liquidity should be enhanced further by this
year's on time issuance of second installment property tax bills, for the first
time in 34 years.

The general fund budget gap for fiscal 2012 is currently estimated at $22
million, considerably lower than the $315 million originally projected. The
county reports it was able to close the majority of the gap through a hiring
freeze, lower election-related costs and contractual savings. It projects the
gap will be completely eliminated by the end of the fiscal year. The county has
taken aggressive steps to control personnel costs through both attrition and
layoffs; the county's personnel headcount has declined 7.4% since 2010, and now
stands at 22,995.

Budgetary pressures will continue in fiscal 2013; the county projects the budget
gap to be $267 million. Reduction in sales tax revenues, due to the rollback,
accounts for $87 million of the gap. While closing the budget gap (equivalent to
11.8% of spending) will present a formidable challenge to the county, Fitch
notes that it is smaller than the preliminary gaps identified for fiscal 2011
and fiscal 2012, which were $487 million and $315 million, respectively.

The county is currently evaluating all areas of government to identify potential
spending cuts. Management plans to address the shortfall primarily through
staffing reductions, reducing juvenile detention costs, healthcare benefit
savings, and potential increased Medicaid funding if the county health system's
application for expanded Medicaid eligibility is approved. The county's ability
to successfully address its budget gaps and institute structurally balanced
operations is instrumental to rating stability.

HEALTH AND HOSPITAL SYSTEM STRAIN

The county's hospital healthcare system, which is classified as an enterprise
fund on a GAAP basis, has been a source of operating pressure due to a
consistent history of operating deficits. The system generated a $472 million
operating deficit in fiscal 2011, which was only partially offset through a
combination of property, sales, and cigarette taxes amounting to $252 million.
Further deficits and continued subsidization from discretionary revenue sources
are likely, which may impact the county's overall financial flexibility.

To become more cost efficient, the county is shifting focus to out-patient care,
improving Medicaid billing collections, and increasing procedural efficiencies
through infrastructure and technological upgrades. The health system's revenue
structure is likely to materially improve by an estimated $70-100 million in
2013, if its application to the federal government for expanded Medicaid
eligibility is approved. County officials expect to receive a determination on
its application in the next two months and are optimistic that it will be
approved.

NOTABLE OBLIGATIONS
Cook County's aggregate debt burden is moderate at $3,993 per capita and 4% of
full market value. Principal amortization is below average with 36% repaid
within 10 years.

The county's debt profile includes a reasonable 13% of unhedged variable-rate
debt that is supported by liquidity facilities, the earliest of which expires in
2015. The capital improvement plan through fiscal 2016 totals roughly $700
million, of which $295 million is expected to be bond financed.

Long-term liabilities related to employment benefits are considerable. The
county provides pension benefits to its employees through a single employer
defined benefit plan. As of December 2011, the unfunded actuarial accrued
liability (UAAL) totaled $4.7 billion, or 59.3% funded based on Fitch's more
conservative 7% investment return assumption.

Compounding the issue, the county's pension contribution of approximately $156
million in fiscal 2011 is well short of the actuarial required contribution of
$474 million. The county has not paid its full annual pension cost for at least
the last five years; the county's property tax levy for pension liabilities is
capped by state statute and management has not addressed the shortfall. County
officials are currently pursuing several avenues including state legislative
changes to ameliorate the funding ratio shortfall.

As a credit positive, the county implemented a two-tiered benefit plan for
employees beginning in January 2011, which should help moderate future liability
growth. Other post employee benefits are also offered to retirees and their
dependents. The county contributed $38 million, which equaled the pay-as-you-go
amount, in fiscal 2011.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported
Rating Criteria, this action was additionally informed by information from
Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index,
IHS Global Insight, National Association of Realtors, Underwriter, Bond Counsel,
and Financial Advisor.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria