CHICAGO — Milwaukee takes bids Thursday on $180 million of revenue anticipation notes to meet the cash flow needs of the city’s public school district as it awaits tax and aid payments.
Comptroller Martin Matson’s office will issue two series of notes, one for $130 million that matures in June and the other for $50 million maturing in December. The comptroller conducts the note sale annually on the school district’s behalf.
Public Financial Management Inc. is advising on the deal and two firms -- Katten Muchin Rosenman LLP and Hurtado Zimmerman SC – are bond counsel.
“While the notes are not general obligations of the city, Fitch believes the city's management of the Milwaukee Public Schools' funds and provider of liquidity create a relationship that supports the highest long-term rating on the notes,” Fitch Ratings said.
The district is formally considered a department of the city under state statute although MPS independently provides elementary and secondary education and independently controls its budget. It lacks the authority to issue debt directly.
Fitch added that the rating is sensitive to changes in the city's long-term credit fundamentals.
“A change in the city's GO rating could result in a downgrade of the note rating. The stable outlook on the city's GO rating reflects Fitch's expectation that such a change is unlikely,” its analysts wrote. The rating agency rates Milwaukee AA.
Its top short-term rating reflects the historical timeliness and predictability of pledged property tax and state aid revenues, the accuracy of past cash flow projections, and reasonableness of the future projections, said Moody’s Investors Service.
Note repayment is secured by a pledge of the district's school operations fund revenues collected in fiscal 2016 that are not otherwise pledged. Interest on the RANs is additionally secured by surplus revenues of the city’s debt service fund.
The district’s state equalization aid primarily comes from state income taxes and is generally unrestricted financial assistance to school districts to fund a broad range of expenditures.
The aid in any fiscal year is computed using the prior fiscal year's enrollment and equalized property valuations. The state distributes school aid five times a year based on an allocation formula and last year MPS received 15% of total state aid in September, 24% in December, 25% in March, 34% in June and 2% in July.
The projected state equalization aid in December 2015 and June 2016 is projected to cover principal note repayment by 2.50 times, and 1.34 times, respectively. In fiscal year 2014, state aid amounted to 59% of general fund expenditures, down from 64% in fiscal 2008.
Milwaukee Public Schools serves an enrollment of 80,441, which has declined slightly from the fiscal 2014 level of 81,744.
