Much of the country may be struggling, but Peoria, Ill., is doing just fine.

During the 1980's , the city that Richard Nixon's strategists had considered the heart of middle America - "Will it play in Peoria?" - suffered economic decline while most of the country enjoyed a boom.

Now, while the national economy is sluggish, Peoria has overcome its shrinking manufacturing base to find prosperity with an upswing in its retail and service industries.

The nation watched this year as the city weathered a strike at Caterpillar Inc., the world's largest producer of earth-moving equipment and the city's primary employer. Rating agencies agreed that the five-and-a-half month struggle left Peoria's financial position unscathed.

City Treasurer Mary Ulrich said many of the 12,600 employees thrown out of work between November and April appeared to have saved up in preparation for the strike, keeping sales tax revenues healthy.

But tightly run finances have also done a great deal to help Peoria ride out hard times, rating agency officials say. Standard & Poor's Corp. has cited the city's low debt, economic stability and strong financial management in giving a AA-minus with a stable outlook to the city's $70.3 million of outstanding general obligation debt. Moody's Investors Service rates the debt A.

With a metropolitan population of 339,172, Peoria, is a regional services and trade center for central Illinois. Located on the Illinois River, the city is the third-largest municipality in the state, behind Chicago and Rockford.

The community hit rock bottom in 1982, when Caterpillar laid off thousands of workers, Ms. Ulrich said. Its Comeback, she believes, began with the election of the current mayor.

"Until 1985, we were hurting as a city. When Caterpillar laid off workers, there were 6,000 homes on the market. Then James Maloof ran for mayor in 1985 and came in with real enthusiasm," Ms. Ulrich said.

She said the mayor was a key player in adding more retail and service industries to the city's economic base to supplement Caterpillar's manufacturing muscle.

According to the Economic Development Council for the Peoria Area, the percentage of employees in nonmanufacturing jobs rose to 67% in 1991 from 55% in 1980. Growth in medical and convention and entertainment industries has contributed to the shift, Ms. Ulrich said.

A Broader Base

In the aftermath of Caterpillar's layoffs in the 1980's, the city has attracted more information and technology firms, according to the economic council. Many of the firms were lured to the area by advanced telecommunications and skilled technical workers in the mid-sized city.

In addition, numerous expanding firms are fueling a building boom in the commercial/technology office market, with over $1 billion in recent or new investment underway.

For example, a local developer is constructing a $23 million development in downtown Peoria, featuring a 19-story office and parking complex. Though the project is privately financed, the city the used the proceeds from $8,47 million of tax increment financing and special service area bonds for parking facilities.

Still, Caterpillar, which has called Peoria home for over 50 years, remains the city's primary employer and taxpayer, with an assessed value that is 2.3% of the city's total tax base.

Ms. Ulrich said several budgetary and cost-saving strategies have helped the city weather the area's economic restructuring.

The city reduced its staff to 763 in 1992 from 949 in 1981 through attrition. Ms. Ulrich added that improvements in management and technology have kept service levels from failing.

With a fiscal 1992 budget of $82 million, Peoria is expected to end the year on Dec. 31 with $12 million in reserves.

In addition, Ms. Ulrich said the city has successfully entered into intergovernmental agreements to cut costs further in such areas as tree trimming, sewer billing, and grounds maintenance.

With property taxes making up less than 20% of its revenue base, Peoria relies heavily on sales tax revenues, which have increased recently through annexation.

In 1985, over 130 acres of vacant and retail-occupied land were voluntarily annexed into Peoria. The city agreed to establish a fund to be utilized by developers and businessmen to encourage economic development. The fund receives about $1 million in annual sales taxes from businesses in that area.

In February 1991, the city annexed about 60 acres that included several large discount stores and a 14-screen movie theater.

In January, the city imposed a 2% utility tax on electric bills and intrastate telephone calls in an effort to lower the property tax rate. The utility tax revenue and $2 million in budget cuts have enabled the city to reduce the property tax rate for the current fiscal year.

Ms. Ulrich pointed out that Peoria has not been forced to curtail its capital improvement projects at the expense of controlling its spending. The city is undergoing a $37 million capital improvement program expected to be completed in 1996.

That program includes construction of a new police station, expansion of the city's civic center, and road and drainage improvements, which will be partly financed with proceeds from $14.6 million of general obligation bonds sold in July.

~Sound Financial Position'

The police station also will be financed by proceeds from the state's income tax surcharge and gaming receipts from a riverboat casino that opened for business on the Illinois River last November. Proceeds from the casino are expected to total $200,000 this year.

Possible future capital projects include development of Peoria's riverfront and the purchase of a private water company to serve its residents. Both projects would be financed with proceeds from revenue bond issues, Ms. Ulrich said.

Peoria's conservative management and budgeting techniques have earned the city praise from rating agencies.

"Their rating really reflects that they have a sound financial position," said Kenneth Gear, associate director in the general obligation group at Standard & Poor's. He added that the city is further bolstered by conservative management and sophisticated budgeting techniques.

Through Caterpillar is expected to reduce its work force by 10% to 20% over the next three to five years, the downsizing could ultimately strengthen the company, Mr. Gear said. But he added that the decrease will have "ramifications" on the people who will be released from the company.

Dianne Golub, a vice president at Moody's, said the city has done a good job of maintaining financial operations that provide average security for the city's above-average amount of debt, which continues to receive support from dedicated taxes and enterprise operations.

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