CHICAGO — Milwaukee today will competitively issue $130 million of general obligation promissory notes and another $16 million of taxable notes and bonds to raise funds for various capital projects and to refund commercial paper.
A portion of the sale also will cover delinquent property tax bills, an amount that has been on the rise, said deputy city comptroller Michael Daun, due to the struggling economy and its impact on homeowners and foreclosure rates in the city.
The notes mature over the next 10 years. The city will follow up the issue with a $50 million sale of GO bonds next month that will carry maturities between 2021 and 2027. Comptroller W. Martin Morics’ office manages the city’s debt issues.
Officials don’t expect to tap the federal Build America Bond program, according to city debt specialist Richard Li. Milwaukee typically amortizes its debt within 17 years, while the benefit of the BAB program is on the longer end of the yield curve.
“If we had a material gain it would be worth it, but we don’t,” Daun said.
Ahead of the sale, all three rating agencies affirmed the city’s GO ratings. Fitch Ratings rates the city’s $784 million of debt AA-plus with a negative outlook while Moody’s Investors Service rates the city Aa2 with a negative outlook and Standard & Poor’s rates it AA.
“The ratings are supported by what we view as Milwaukee’s status as the economic hub of southeastern Wisconsin, a diverse manufacturing-focused employment base with continuing diversification in the service sector; adequate financial operations with adequate reserves; and moderately high overall net debt,” Standard & Poor’s wrote.
Fitch shifted its outlook to negative last summer.
“The negative rating outlook on the GO bonds results from economic deterioration within the city of Milwaukee coupled with financial position weakness, thereby creating a more challenging fiscal picture going forward,” Fitch wrote in its new report.
Though its economy is broad and diverse, it’s been hit hard over the last year by the recession and its recoveries are typically slower than the national average. Strong financial management and the maintenance of a tax stabilization fund and public debt amortization fund help offset some rating agency concerns over the city’s fiscal struggles.
Milwaukee’s Common Council adopted a 2010 budget that is balanced without tapping reserves but analysts said the city will be challenged to keep the spending plan in the black as collective bargaining contracts are not yet settled and a sizeable pension contribution is due.
The city’s retirement system remains well-funded. It dropped below 90% funded in 2008 due to losses, but investment gains last year and a large contribution due this year should bring it to a fully funded level. The city faces an $881 million other post employment benefits unfunded liability.
In addition to the upcoming GO sales, officials are also working on the sale of the remainder of a $50 million qualified school construction bond issue. In December, the city sold $12 million of the $50 million. It first took bids in early December but received only one bid on the tax-credit bonds that was at a slightly higher rate than Morics’ office hoped to capture.
Later in the month, the city revised the sale and ended up selling $12 million at an acceptable rate. Daun and Li said they would wait to act on selling the remainder to see whether Congress acts on pending legislation that could impact the program.
