Fitch Rts Milwaukee, WI's $43.5MM GOs & Nts 'AA+' & $150MM RANs 'F1+'

CHICAGO--(BUSINESS WIRE)--Sept. 24, 2003--Fitch Ratings has assigned a 'AA+' rating to both the City of Milwaukee, Wisconsin's $39.4 million general obligation corporate bonds, series 2003 B6, and $4.1 million general obligation promissory notes, series 2003 N7. Fitch also assigned an 'F1+' rating to Milwaukee's $150 million short-term school order notes, series 2003 M5 (revenue anticipation notes). All issues are scheduled to sell competitively on September 25. The Ratings Outlook is Stable.

The general obligation corporate purpose bonds, dated the date of delivery, mature Oct. 1, 2004-2018 and pay interest each April 1 and Oct. 1, beginning April 1, 2004. The general obligation promissory notes, dated the date of delivery, mature Oct. 1, 2005-2013 and will pay interest each April 1 and Oct. 1, beginning April 1, 2004. Only the general obligation corporate purpose bonds maturing on or after Oct. 1, 2014 are subject to prior redemption.

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The general obligation corporate purpose bonds and promissory notes are payable from the pledge of the city's unlimited ad valorem tax levied on all taxable property within the city. The corporate purpose bonds will finance $22.7 million of various public improvement projects, including police and fire station improvements, and current refund $16.7 million of outstanding series 1993 general obligation bonds. The general obligation notes also will finance various capital improvements.

The series 2003 M5 RANs, dated Sept. 30, will mature and pay interest on June 30, 2004. The RANs are secured by a pledge of all school operating fund revenues and surplus debt service fund revenues. The notes will finance the Milwaukee Public School's operating budget in anticipation of state school aid payments. State-shared revenue is expected to total $615.5 million in fiscal 2004 (6/30 year-end for the school system), covering RAN debt service 3.9 times (x); total school operating fund receipts without borrowing total $1 billion, covering debt service 6.5x.

The City of Milwaukee's conservative financial management contributes to sizable long-term reserves and fiscal flexibility. In addition, the city derives much of its operating revenue from a stable statewide revenue stream. Although debt levels are above-average, the debt burden is manageable, aided by rapid amortization and continued growth in taxable property values. The capital improvement plan (CIP) is large and expected to be funded by various sources; a major part of the plan continues a trend of increased use of tax levy funding for capital needs.

The Milwaukee economy continues to diversify, showing greater resilience to business cycles despite manufacturing's sizable presence. Construction activity has boosted the tax base significantly. In the past five years, the property tax base has grown 4.3% annually. The city's main source of operating revenues is stable, with intergovernmental aid constituting about half of governmental fund revenues. Intergovernmental aid is composed primarily of state revenue sharing that allows Milwaukee to fund much of its operating costs from sources outside its own tax base. After peaking in 1998, however, intergovernmental revenue has declined and is expected to represent about 49% of total revenues. While not final, state revenue sharing is expected to decline in fiscal 2004.

In 2002, Milwaukee produced a $17.2 million surplus in the general fund, which increased the ending balance to $86 million (16.7% of spending), from $68.8 million (13.9%) in 2001, primarily due to spending reductions outpacing weaker property tax revenues and interest income growth. Results in 2002 also incorporate GASB34 accounting changes and may not be comparable to earlier financial results. Nevertheless, the administration limited spending growth through a hiring freeze, non-personnel spending reductions and fewer equipment purchases.

Fitch expects that the city has the operating flexibility to manage continued tax revenue weakness in 2003 through tight cost control and maintenance of the hiring freeze. Fund balances are sizable and, despite small planned drawdowns between 1992 and 1999, the tax stabilization reserve has increased steadily and reached $33.7 million or 6.5% of general fund expenditures in 2002. The city improved its reserves through a combination of own-source revenue increases and spending restraint. While the city intends to keep the reserve within the 5%-10% range of expenditures, state revenue sharing reductions and slower economic growth could limit future improvements.

Milwaukee's debt ratios, while above average, remain affordable at 5.6% of equalized value and $1,891 per capita. These levels are expected to be stable, despite the sizable capital plan, as a result of rapid amortization and sustained modest growth in equalized property value. In addition, the city maintains a public debt amortization fund (PDAF), which provides a healthy cushion for debt repayment ($73.5 million in 2002). The city's CIP for 2003-2008 totals $1 billion, with about one-third financed by borrowing. An additional $72 million for the Milwaukee Public Schools increases the CIP total to about $1.1 billion. By policy, the city now finances 85% of recurring infrastructure with internal sources.