CHICAGO - Moody's Investors Service hit Milwaukee with a one-notch downgrade to Aa3 following a review prompted by its change in local government general obligation methodology earlier this year.
The April 9 action impacts $811 million of long-term GO debt.
Moody's at the same time lowered the Milwaukee Public Schools issuer rating to Aa3 from Aa2 due to its "interconnectedness" with the city. The city serves as the debt issuer and obligor for the school system although it is governed by an elected board and has its own property tax levy.
Due to ties to the city and debt support, Moody's also lowered the city redevelopment authority's $23 million of Summerfest project revenue bonds one level to A2 from A1 and its lease bonds for three MPS schools to A1 from Aa3. The outlook on all ratings is stable.
"The Aa3 rating on Milwaukee's GO debt reflects the city's weakened socio economic indices, elevated unemployment rate and trend of tax base declines," Moody's said. "Additionally, it reflects the interest rate risks and refinancing risks associated with certain of the city's debt instruments."
The city has seen valuation declines in the each of the last five years and has limited flexibility in raising its property tax levy.
The rating also reflects the city's long standing role as an economic engine for the state, its sizeable tax base, an improved general fund position, moderately funded pension plan that will benefit from recent pension reforms, and the availability of alternate liquidity from its Public Debt Amortization Fund.
"The stable outlook reflects our expectation that the city's negative valuation trends will subside over the long term and that the recent improvement in general fund operations and reserves will be maintained," Moody's wrote. "The outlook also reflects our expectation that the city will continue to closely manage its complex debt program."
The city is rated AA with a stable outlook by Standard & Poor's.
City Comptroller Martin Matson, whose office manages the city's debt issuance, said the city doesn't believe the new rating reflects the city's fiscal strengths.
"The city does not believe that the new rating reflects the underlying strength and sound financial management of the city," Matson said in an email. "Earlier this year, the city completed a review by Standard & Poor's under their new criteria with no change to the city's rating.
The city's next debt sale is slated for May 1st and Matson said it's the city's hope that the market will have digested the news by then.
