CHICAGO - Standard & Poor's lifted its negative CreditWatch designation for Lake County, Ind., and eight municipalities within the county Friday and plans to review others after a court that's hearing a lawsuit challenging the constitutionality of a tax reassessment stopped the county from sending out tax bills earlier this year.
The rating agency removed the credit watch designation for the town of Schererville, the Merrillville Conservancy District, Lake Station Schools, Lake County, the city of Highland, the Hammond Schools, the city of Griffith, Griffith Public Schools, and the Dyer Redevelopment Commission, said analyst James Wiemken.
The rating agency is reviewing each of the other municipal issuers in the county on an individual basis, he said. In May, the agency put all of the municipal issuers in Lake County on credit watch after a Lake County Superior Court agreed that the new tax formula for the county violated the state constitution. As much as $2.28 billion of issuance, with final maturities in 2004 or later, was affected by the CreditWatch designation, according to& Thomson Financial. The rating adjustment followed the decision by the Indiana Bond Bank to exclude Lake County municipalities from its tax warrant anticipation program.
Standard & Poor's will also review the credit watch designation on some pension bonds that were issued by the Indiana Bond Bank for pension funds run by Lake County entities, Wiemken said.
Residents of the Miller Beach neighborhood in Lake County, where tax bills, in some cases, tripled with the reassessment, filed the lawsuit, arguing that the state violated a constitutional provision that prevents it from creating special legislation for one municipality.
The state appealed to the Indiana Supreme Court, which granted a stay of a lower court ruling that prevented Lake County from sending out tax bills for 2002 assessments. As the county attempts to return to its normal billing cycle, many municipalities have had to seek alternate revenue sources. Lake County sought short-term borrowing through its local Bank One branch, said Larry Cak of the Lake County Treasurer's office.
In the past few weeks, the county distributed tax revenue for taxes due in 2003, Cak said. The county expects to bill for taxes due in 2004 within about a month, he said. That could mean a delay in the distribution of that revenue this year, he said. The county expects to return to its normal billing cycle by the end of next year, he said.
Even Lake County may have to return to the bank or find another means to bring in interim cash again this year, Cak said.
Ratings analysts saw the return to a normal billing cycle as positive news, but Wiemken said the key to the ratings reviews is how municipalities have managed their cash flow in the interim.
"The credit watches that we have reflect only the near-term liquidity issues," Wiemken said. "To the extent that we receive information that demonstrates that there's really not a short term concern, than those credit watches are likely to be removed regardless of other long-term issues."
More good news came from the Bond Bank on Friday. The entities that borrowed through the Indiana Bond Bank's tax warrant program prior to the court's ruling have repaid the warrants in full, said Dan Huge, the executive director of the Bond Bank. This month, the entities repaid all of the $112 million that was borrowed, he said.
"That was positive news from our standpoint," Huge said. The Bond Bank is reviewing whether to lift its ban on Lake County entities borrowing through its program, he added.
The Indiana Supreme Court has not yet issued a ruling on the case. Meanwhile, Lake County is using the new formula to calculate its tax bills, Cak said. Depending on how the court rules, ratings for the county and its municipalities could be affected, Wiemken said.
