Here’s what Moody’s has to say about the City’s AAA Bond rating, including that we have “one of the nation’s strongest economies”.
MOODY’S ASSIGNS Aaa RATING TO THE CITY OF MADISON’S (WI) $58.0 MILLION GO PROMISSORY NOTES, SERIES 2008-A
Aaa RATING APPLIES TO $254.7 MILLION OF POST-SALE GOULT DEBT
General Obligation Promissory Notes, Series 2008-A Aaa
Sale Amount $58,000,000
Expected Sale Date 10/07/08
Rating Description General Obligation Unlimited TaxNEW YORK, October 3, 2008 — Moody’s Investors Service has assigned a Aaa rating and stable outlook to the City of Madison’s (WI) $58.0 million General Obligation Promissory Notes, Series 2008-A. Concurrently, Moody’s has affirmed the Aaa rating on the city’s $254.7 million of outstanding general obligation unlimited tax backed debt. The notes, which are secured by the city’s general obligation unlimited tax pledge, will finance various infrastructure projects throughout the city. Moody’s highest quality rating is based on the city’s strong and diverse economy; sound financial operations that benefit from favorable reserve levels as well as the stability of the city’s primary revenue sources; and a favorable debt profile.
LARGE AND DIVERSE TAX BASE SUPPORTED BY ONE OF THE NATION’S STRONGEST ECONOMIES
Moody’s expects continued growth in the city’s substantial and diverse $23.1 billion tax base due to the availability of land for development, appreciation of existing property, and the area’s strong employment base. Over the last five years, the city’s tax base has increased by a sound 7.3% average annual rate., though this slowed notably in 2008 which posted a 3.6% change over the prior year. While economic growth over the near-term will likely remain slow, employment within the Madison MSA is expected stable. The most recent monthly unemployment figure, 3.6% in July 2008, reflects the availability of employment opportunities in the region and compares favorably to both state and national rates for the same period (4.8% and 6.0%, respectively). City officials report that although the foreclosure rate has risen, this index is still very low when compared nationally.
The University of Wisconsin – Madison campus remains the state university system’s flagship campus with a significant student enrollment of over 42,000, or over 19% of the city’s total population. Anchored by the presence of the state capital and county seat, the city also enjoys a highly diverse economic base. High technology, software development, and bio-medical research have become a larger component of the city’s economy and continue to expand, drawn in part by the highly educated labor force of this university community. Resident income indices are above average, despite the high student population, indicating above average resident wealth levels and the quality of available jobs in the region.
SOLID FINANCIAL OPERATIONS BENEFIT FROM STRONG BUDGETARY CONTROL AND FAVORABLE RESERVE LEVELS
Moody’s anticipates that the city’s financial operations will remain sound given the stability of the local economy and management’s strong fiscal oversight. The city annually budgets for the use of designated reserves, but routinely exceeds budgeted revenue projections while coming in under budget on expenditures. The conservative nature of management’s projections is reflected in the history of annual General Fund surpluses, with the exceptions of fiscals 2004 and 2005 due to special circumstances. The fiscal 2004 General Fund deficit of $6.2 million was a result of a $5 million use of reserves to pay down the city’s unfunded pension liability and a $2 million increase in the city’s worker compensation fund reserve, based on an updated actuarial analysis. Fiscal 2005 resulted in a moderate operating deficit of $2.1 million, due in part to unplanned one-time expenditures as well as a temporary advance of $4.7 million to the water enterprise that was subsequently repaid with bond proceeds. Further, the General Fund balance was restated with a $2.7 million increase, due to a removal of an accrued liability for expensed vacation and sick leave, per the recommendation of the city’s independent auditors.
In fiscal 2005, the city’s Unreserved/Undesignated General Fund balance had dropped to 12% of General Fund revenues, which is short of the city’s stated goal to maintain undesignated reserves equal to 15% of the budgeted expenditures. Despite a plan to apply another $3.5 million of designated reserves in fiscal 2006, the city closed the year with a $6.8 million surplus resulting from favorable revenue variances in investment income and other sources. The strong surplus in 2006 along with the repayment of $3.0 million from the water utility brought undesignated eeserves to $32.5 million, or a healthy 16.6% of General Fund revenues. The city applied $2.5 million of fund balance to its fiscal 2007 budget but again actual results reflected a $1.4 million surplus, primarily due to better than budgeted interest earnings. In fiscal 2008, the city planned the use of $2.0 million in fund balance and officials report the city is thus far on track with the budget. Management notes that heavy snow fall and high fuel prices, along with slow interest earnings and building permit revenues, are the key budget items that will likely
result in realizing the planned draw this year.The city derives the bulk of its revenues from property taxes,comprising 66.1% of core receipts (fiscal 2007). Public safety and public works are the city’s two largest expenditures, representing 45.3% and 22.0% of operating expenses, respectively. Favorably, the city does not face a sizeable actuarial liability under GASB 45 reporting requirements as post-retirement health benefits are very limited.
MODEST DEBT BURDEN WITH DIRECT DEBT SUBJECT TO AGGRESSIVE RETIREMENT
Moody’s believes the city’s debt profile will remain favorable as outstanding debt is rapidly retired and taxable resources will continue to expand moderating the impact of the city’s future borrowing plans. The city’s overall debt burden is modest at 2.2%, with direct debt below average at 1.3% of full valuation. In terms of additional borrowing, the city may issue sewer utility revenue bonds later this year. According to the city’s capital improvement plan it will issue approximately $58 million in 2009. Such borrowing is expected to remain manageable as the rate of principal amortization on general obligation debt is extremely rapid with 94.0% retired in ten years.
KEY STATISTICS:
2000 Census Population: 208,054 (8.4% increase from 1990)
2008 Full valuation: $23.1 billion
Estimated full value per capita: $102,778
Unemployment (07/08): 3.6%
1999 per capita income as % of state: 111%
1999 median family income as a % of state: 113%
Debt burden: 2.2% (1.3% direct)
Payout of principal (10 years): 94.0%
FY2007 undesignated General Fund balance: $30.9 million (15.1% of General Fund
revenues)Post-sale rated GOULT debt outstanding: $254.7 million
ANALYSTS:
Beth A. Dougherty, Analyst, Public Finance Group, Moody’s Investors
Service John Humphrey, Backup Analyst, Public Finance Group, Moody’s
Investors ServiceEdward Damutz, Senior Credit Officer, Public Finance Group, Moody’s
Investors Service
