CHICAGO - Wisconsin will take bids on $237 million of general obligation bonds Tuesday against a backdrop of improving state revenues.
Proceeds of the 20-year bonds will fund various governmental projects approved by the State Building Commission. Foley & Lardner LLP is bond counsel. There is no outside financial advisor
Ratings agencies have not released new reports, but in the fall they affirmed the state's double-A ratings and stable outlooks. Wisconsin also sought a first-time rating from Kroll Bond Ratings Agency at the time, the outcome also a AA rating and stable outlook.
State capital finance director Kevin Taylor said he's received positive feedback from investors and brokerage desks on the state's decision to use Kroll and decided to expand the state's use of the firm to rate several of its short-term borrowing programs.
The GO bonds will feature an eight-year par call instead of a traditional 10-year call. It's something the state has done before but not for some time. "It's beneficial to us to us and we don't think the market will penalize us," said assistant capital finance director David Erdman. A minimum coupon of 5% is required on maturities beginning in 2027. The state imposed a minimum coupon on a GO sale last year and believes it contributed to its record low true interest cost of borrowing.
Taylor said the state is eyeing refunding opportunities in both its GO and transportation portfolios. The office also continues to review proposals submitted last year from financial advisers and brokerage firms interested in working on asset sales and in the coming weeks to announce a pool of advisors. The two-year budget signed last year included a provision allowing for the evaluation of state assets for sale or lease, including heating plants, telecommunications, excess property, and underutilized assets.
The state recently released revised estimates that show a more than $900 million increase in expected revenues. Under law, half would normally flow to the state's lean budget reserve but Gov. Scott Walker in his state of the state address Wednesday proposed tax changes that would return much of the extra revenue to taxpayers. Only $100 million would go into the state's reserve, which holds $279 million.
The Republican governor, who is seeking re-election this year, took credit for the state's improved economic health compared to his first year in office three years ago when the state faced a $3 billion deficit.
"Thanks to sound fiscal management, I am proud to announce further tax relief for Wisconsinites and additional funding for worker training. We will continue to work diligently until everyone who wants a job can find a job," Walker said in his address.
Walker called for distributing $800 million of the unexpected revenue to taxpayers through income and property tax cuts.
The property tax cuts carry a $406 million price tag. The income tax cuts would total about $100 million to reduce the lowest income tax bracket to 4% from 4.4% with a maximum savings of $58 per taxpayer. Another $323 million would flow back to taxpayers through a reduction in the state's withholding tax resulting in savings of about $520 million for a family of four.
Walker would put $100 million in the rainy day fund and spend $25 million on job training programs. Republicans who control the legislature praised the plan although they said there may be tweaks.
Democratic gubernatorial candidate Mary Burke and other Democrats chided Walker for what they called an exaggeration of the state's fiscal health and rosy revenue estimates. She offered an alternative plan for much of the additional revenue.
"First, pay down the debt and bolster the rainy day fund so we enter the next budget in a stronger position," she said. "Scott Walker has added an estimated $1.2 billion of debt to the state rolls. We have to pay our bills before we put more on the credit card."
Burke also called for property tax relief targeted to middle class homeowners. She agreed that some additional funding should go towards worker training programs.
Walker's first two-year budget for the fiscal years 2012-2013 slashed local government and school aid to help close the deficit. With the state's structural deficit and tax collections improving, Walker last year included a $650 million income tax cut in his $68 billion 2014-2015 budget. He then added a $100 million property tax cut through a change in school aid formula after the state closed out fiscal 2013 with a higher than expected ending balance.
The state's rating reflects an improved liquidity position highlighted by the availability of up to $1.9 billion in alternate-fund liquidity, as well as a fully funded pension system and limited other post-employment benefits liability, in contrast to many other states, Moody's Investors Service wrote in its last 2013 report.
Offsetting its strengths is a weak financial position reflected in the negative GAAP unassigned fund balance of negative 18% in fiscal 2012 as the state balances its books on a cash basis, an ongoing structure imbalance, and exposure to cyclical manufacturing declines.
