Moody’s Investors Service stripped Dane County of its top credit marks due to its declining fund balance and warned of a potential future downgrade ahead of its $24 million general obligation bond sale last week. The issue included a tranche of recovery zone economic development bonds authorized in the federal stimulus program.
The rating agency lowered the county’s credit to Aa1 from Aaa and assigned a negative outlook, affecting $236 million of debt. Dane issued $2 million of taxable GO corporate purpose Build America bonds, $8.5 million of GO health center RZEDBs and $14 million of GO promissory notes last week.
RZEDBs can be issued through 2010 by qualified governments for improvements within a recovery zone. That designation is determined by the governing body and is based on findings of significant poverty, unemployment, rate of home foreclosures or general distress.
The program provides a federal interest subsidy of 45%. The BAB program provides a direct-pay 35% interest subsidy. The county is using proceeds of the deal to finance various capital projects, including the second and final phase of a new nursing home.
Moody’s noted that Dane County has struggled with economic pressures as 2008 tax revenue collections and expenditures in the sheriff’s department were “dramatically off budget,” leaving a $10 million deficit and resulting in additional draws on its general fund reserves.
The draws left the county with an undesignated fund balance of $3.3 million, or 1.7% of general fund revenue. Ongoing struggles and an additional draw of $10 million will leave the county with a projected negative $7 to $8 million balance in 2009.
Dane County officials expected to take in an additional $1.4 million in sales taxes but now project that collections will fall $5 million below the previous year’s levels.
General fund subsidies for human services and health programs are also on the rise, pressuring the county’s balance sheet.
“The Aa1 rating and negative outlook reflect the county’s pressured financial operations that are expected to result in negative undesignated reserves at year-end,” Moody’s analysts wrote.
The county intends to increase its property tax levy to bring its undesignated fund balance into positive territory, and officials are being more conservative with their sales tax projections and plan to seek wage concessions from unions.
The government’s strong tax base of $52.2 billion is expected to continue to grow but at a slower clip than in the past.The county benefits from a diverse economy that includes Madison, which is the state capital, and home of the state’s flagship University of Wisconsin campus.
