CHICAGO — Milwaukee will competitively sell about $250 million of general obligation debt Wednesday as it grapples with the impact of looming state revenue cuts proposed by Wisconsin Gov. Scott Walker.
The sale comes in four series — $100 million of cash-flow notes, $93.6 million of promissory notes, $29 million of tax-exempt bonds, and $34 million of taxable bonds. Robert W. Baird & Co. is the city’s financial adviser on the competitive transaction.
Proceeds will refund outstanding debt, convert commercial paper notes to long-term debt, smooth out cash flow as the city awaits $194 million in state revenue-sharing payments in November, and fund various capital projects.
Ahead of the sale, the three rating agencies affirmed the city’s top short-term marks and double-A level ratings assigned to $1 billion of GO debt. Fitch Ratings revised the outlook on its AA-plus GO rating to negative from stable, citing the city’s exposure to state revenue-sharing cuts.
Moody’s Investors Service rates the city’s GOs Aa1 with a negative outlook and Standard & Poor’s rates Milwaukee AA and stable.
The city’s overall credit profile remains strong, with rapid repayment of manageable debt levels and a fully funded pension system, but its exposure to state actions and limited revenue raising options pose a threat.
“The negative outlook reflects reduced reserves, limited revenue raising options and looming state aid cuts,” Moody’s wrote.
“Offsetting credit factors include a high unemployment rate, adequate, but below-average, income levels, and financial operations that are constrained by flat state revenues and a state-imposed levy cap,” said Standard & Poor’s analyst John Kenward.
The concerns come as the city returned to balanced operations in 2009 and 2010 through wage concession and spending cuts, but also as it has yet to fully replenish draws on reserves to cover operations during the Recession.
Milwaukee relies heavily on property tax collections and state-revenue sharing to cover general fund expenses. Nearly 47% — or $272 million — comes from the state program.
State aid levels have remained flat since 1995 and the Republican governor has proposed a 4.5% cut in his fiscal 2012-13 budget, which is pending before the Legislature.
Walker has argued that controversial legislation he signed into law earlier this year — which curbs the collective bargaining rights of most public unions and increases employee pension contributions and health care premium payments — will ease the impact of cuts.
City Comptroller W. Martin “Wally” Morics, whose office oversees city borrowing, disagrees. That’s because public safety unions and employees were exempted from the state legislation and they account for 75% of the city’s personnel costs.
“It’s ludicrous to say the governor has given us the tools to deal with the cuts. The toolbox is broken,” Morics said. The city faces property tax caps and limited flexibility to raise other revenues.
The deal follows the city’s sale of $53 million of sewage revenue bonds on Tuesday that captured a true interest cost of 3.47%, according to Richard Li, public debt specialist in the comptroller’s office.
Cabrera Capital Markets LLC was the senior manager of the sewage bond offering.
The bonds are rated in the double-A category. Proceeds will refund outstanding debt from issues in 2001 and 2003 and raise new money for various system projects.
