CHICAGO - Milwaukee County is readying its long-planned $400 million taxable pension issue for sale as soon as next week amid the bad news that market losses have more than doubled the size of the county's unfunded pension liability.

The financing - which originally was to bring the county's pension fund to a near fully funded status - still will generate significant enough present-value savings of about $33.5 million over the life of the debt to make it well worth doing, said county budget director Steve Kreklow.

The savings come from the difference between the 8% interest rate the county currently pays on its unfunded liability and the 6% to 6.5% rate expected on the bonds. The county also expects a long-term earnings rate of 8% on the invested bond proceeds. While funds have been losing ground over the last year, officials are still banking on the market's return and an 8% average earnings ratio over the long term.

If the tax-exempt market deteriorates in the coming weeks and rates rise, Kreklow said the county would postpone the transaction.

"We are evaluating the market every day to make sure the spread is as large as possible so we have the largest possible cushion going forward," he said.

The county still anticipates steep increases in its pension payments in the coming years due to market losses that have boosted the unfunded liability to an estimated $900 million from $400 million.

A formal actuarial analysis will be completed in the spring with annual contributions based on the expected market performance of the fund's assets over a five-year period. The current estimated payment in the 2010 budget - including debt service on the bonds - is up to about $71 million from previous estimates of $48 million.

County Executive Scott Walker first proposed a pension borrowing in 2004 amid skyrocketing annual contributions stemming from additional benefits approved in 2001 under former executive F. Thomas Ament that prompted a wave of early retirements. Prior to 2000, the plan was fully funded.

JPMorgan is senior manager and Citi and Loop Capital Markets LLC are also underwriters. Public Financial Management Inc. is financial adviser and Chapman and Cutler LLP is bond counsel.

The debt is divided into two series, $265 million of 20-year general obligation promissory notes and $135 million of note anticipation notes - subject to annual appropriation - with a bullet maturity in 2013. The county would then issue long-term 20-year GO promissory notes.

Ahead of the sale, Fitch Ratings affirmed its AA rating on $630 million of GO debt and assigned a AA-minus to the anticipation note tranche. Moody's Investors Service affirmed the county's Aa3 and assigned both tranches the same rating. Standard & Poor's had not yet released its report by Friday.

Moody's said the county's rating is based on a "sizeable and increasingly diverse tax base, although showing effects of the national economic slowdown; historically narrow, but improving financial position, supported by strong management and prudent budgetary controls."

While the city's housing market has slowed, the impact is expected to be more moderate than national trends. As of December, the county had an unemployment rate of 6.5%.

The county expects once final figures are known to have closed out 2008 with a balance of between $45 million and $48 million or 4% of revenues. Although the county has seen some revenues fall short of estimates this year and expenses are up, the budget benefits from a $7.9 million contingency fund.

By issuing the debt and shifting that piece of the funding burden to a debt service levy, the county will gain some financial flexibility by freeing up room in its operating levy which comes under state tax caps, Fitch noted as a benefit. The county also will create a stabilization fund that can be tapped when contribution requirements rise above expectations in future years.

The county's other post-employment benefits unfunded liability is $1.3 billion. The county currently funds those benefits on a pay-as-you-go basis of $110 million annually.

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