NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to the following Milwaukee County, Wisconsin (the county) bonds:
--Approximately $39.2 million general obligation corporate purpose bonds, series 2014A.
The series 2014A bonds will finance various capital projects and are expected to sell via competitive sale on October 21.
Fitch has also affirmed the following Milwaukee County ratings:
--Approximately $455 million unlimited tax general obligation bonds at 'AA+';
--Approximately $238 million taxable general obligation pension refunding bonds, series 2013A and B at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The GO bonds are secured by the county's full faith and credit and its ad valorem tax, without limitation as to rate or amount.
KEY RATING DRIVERS
FLEXIBILITY DESPITE NARROW MARGINS: Conservative budgeting and careful expenditure control have allowed for consistently balanced operations most years, despite adverse economic conditions and statutory requirements to appropriate surplus. The county retains considerable margins of flexibility despite stricter revenue raising constraints imposed by the state.
REGIONAL ECONOMIC ENGINE: Milwaukee County serves as the economic engine for the surrounding region although post-recession recovery has been slow. Tax base growth has turned modestly positive following several years of declines.
BELOW AVERAGE SOCIOECONOMIC INDICATORS: Per capita income and market value levels are below average. The unemployment rate remains somewhat elevated, typical of areas historically dependent upon manufacturing.
MANAGEABLE LONG-TERM LIABILITIES: The overall debt burden is above average but manageable, future capital needs are limited, and principal amortization is rapid. Pensions are adequately funded, in large part through the issuance of pension obligation bonds.
RATING SENSITIVITIES
RATING STABILITY EXPECTED: The Stable Outlook assumes management continues to achieve consistently balanced results within existing constraints. However, future economic or revenue underperformance or a narrowing of operating flexibility could negatively affect the credit.
CREDIT PROFILE
Milwaukee County serves as the regional economic and cultural center for south eastern Wisconsin. The city of Milwaukee (rated 'AA' with a Stable Outlook by Fitch), which is the county seat of Milwaukee County, accounts for roughly 48% of the county's total assessed valuation and 63% of its population. Annual population growth since 2010 has averaged a low 0.1% to 956,053 in 2013.
FLEXIBILITY DESPITE NARROW MARGINS
The county's financial operations are characterized by stable operating results and modest general fund balances, in the range of 4%-7% of spending. Tax levy limits have been in effect since 2005. The county operates under limitations to revenue raising and maintenance of fund balances; however, considerable fiscal flexibility is provided by the county's ability to reduce spending or redirect levies for maturing debt, among other sources.
The proposed fiscal 2015 budget does not raise the property tax levy. The county retains considerable financial and levy flexibility. Under current restrictions, the county could raise the property tax levy by another projected $10 million in fiscal 2015 if needed. Also, the county has accumulated significant reserves in the debt service fund, $18 million is available in 2014 which could provide additional operational revenue. Liquidity is adequate across funds and no cash flow borrowing is required.
POSITIVE FISCAL TREND DESPITE RESTRICTIONS
The county has recorded nominal general fund operating surpluses after transfers in four of the past five years despite adverse economic conditions and revenue-raising constraints, underscoring the county's solid management profile.
Fiscal 2013 general fund results generated a small net surplus of $5.9 million, or 0.6% of spending, despite the budgeted appropriation of $14.8 million of general fund balance. The positive variance was largely the result of cost containment measures, as revenues underperformed budget for the year. Expenditure savings included court/correctional changes, unfilled positions resulting in lower salary and benefit costs, lower employee medical costs and more cost effective pricing of outside services and suppliers.
The county's revenue streams are heavily dependent on state funding with charges for service (primarily family care costs reimbursed by the state) accounting for 40% of total general fund revenues, followed by intergovernmental revenue at 22%, property tax at 28%, and sales tax revenue at 6%. The county ended 2013 with an improved 7.3% total general fund balance, somewhat higher than the 4% to 4.5% range recorded in recent years. Given the small financial cushion, the county's ability to successfully achieve balanced operations will continue to be crucial to rating stability.
The adopted 2014 budget maintained property taxes level with 2013 (which was a 2% increase over 2012), a $1.7 million (2.5%) increase in sales tax revenues over budget 2013, and a de minimus amount of appropriated general fund balance from prior year surplus. Current county projections indicate an approximate $8 million general fund operating surplus for 2014. The favorable results reflect transit-related savings, health care expenditure savings and better-than-budget sales tax receipts. In accordance with statutory requirements to appropriate surplus fund balance, the county plans to transfer a portion of the operating surplus to its debt service fund. The remaining $5 million will be restricted within the general fund, to be appropriated in the fiscal 2016 budget.
The proposed fiscal 2015 budget again holds the property tax levy flat, offsets an expected $9 million increase in pension costs with a wage freeze, lower health program costs, selective service privatization and various fee increases. The budget will likely appropriate a portion of the 2013 surplus. Fitch expects the adopted budget to be balanced and maintain overall reserve levels.
BELOW-AVERAGE SOCIO-ECONOMIC INDICATORS
Wealth levels are below average, largely reflective of the county's urban core. Per capita income is 88% of the state and 86% of the national levels. Housing values have been under pressure, contributing to the decline in assessed value. Fiscal 2014 assessed value represented a 17.8% drop since the peak in fiscal 2010 with a modest 2% increase projected for fiscal 2015. Fitch expects overall tax base growth to be modest with slow improvement in housing values and minimal new development activity.
The county's July 2014 unemployment rate of 7.6% represented an improvement over the 8.7% recorded one year prior, the result of strong employment gains strongly outpacing growth in the labor force. The July 2014 rate remains above both the national rate of 5.9%, and the state rate of 5.8%.
MANAGEABLE LONG-TERM OBLIGATIONS
The aggregate debt burden is elevated at 6.1% of full market value but more moderate at $3,648 per capita. A significant portion of the debt burden is attributable to the pension obligation debt, and represents the exchange of one type of long-term obligation (unfunded pension liability) for another (bonded debt); without pension borrowing, the debt burden would be 5.85%. Principal amortization is rapid with 72% repaid in 10 years.
Debt service accounted for a manageable 6.8% of fiscal 2013 total governmental expenditures, and should remain affordable. The county's five-year capital improvement plan to be debt financed totals roughly $100 million, which is less than half the principal retired over same period.
Milwaukee County's long-term liabilities related to employment benefits are mixed. The county provides pension benefits to its employees through single-employer defined benefit plans. As of January 2014, the unfunded actuarial accrued liability (UAAL) totaled $297 million or a modest 0.5% of full market value. The ratio was bolstered by $400 million in pension bonds in 2009 to augment pension assets
Based on Fitch's more conservative 7% investment return assumption, the pension plans are estimated to be a combined 77% funded using the actuarial value of pension assets.
Other post-employment benefits (OPEB) are also offered to retirees and their dependents. The county contributed the pay-as-you-go amount of $58.6 million in 2013. As of January 2013, the UAAL totaled $1.1 billion or a meaningful 2.0% of full market value. Healthcare plan design changes for non-represented employees and retirees reduced the OPEB liability by $230 million or approximately 15% in 2013.
Carrying costs in fiscal 2013 (the combined pension, OPEB, and debt service payments) equaled a reasonable 12.4% of governmental fund expenditures and transfers out (net of capital projects).
Additional information is available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'. In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors and Financial Advisor (Public Financial Management).
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug.
14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=895034
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