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Moody's downgrades Milwaukee's bond rating

By   /   April 17, 2012  /   No Comments

By M.D. Kittle | Wisconsin Reporter

MADISON — Moody’s Investors Service has downgraded the city of Milwaukee’s bond rating by a notch, reflecting the city’s declining population and its diminished property values.

While the city’s fiscal strength remains solid, according to the ratings agency, the downward dip could cost taxpayers and holders of the bonds.

Moody’s lowered Milwaukee’s rating from Aa1 to Aa2.

The standing remains near the top rung of Moody’s ratings ladder, just a couple of notches down from the top Aaa rating.

“We consider any double-A credit rating to be of high quality, subject to very low credit risk,” said David Jacobson, spokesman for Moody’s Investors Service, a bond credit rating business of Moody's Corp. 

Still, any downgrade can cost the issuer — be it state, city, county or other government entity — in the price of borrowing, ultimately costing taxpayers. And for bondholders, any downgrade could diminish value.

Mike Daun, Milwaukee deputy comptroller, said the city has been at Aa or better for the past quarter century. Standard & Poor’s, another top credit ratings firm, rates the city’s bonds at Aa.

Moody’s three years ago put the city on a negative watch.

Daun said while Milwaukee’s fiscal house was in order, the government has eaten into its reserves in recent years.

“Poverty statistics have increased, the real estate debacle has hit large cities like ours. There’s been a reduction in property values,” said Daun, who has worked for the city for 32 years.

Moody’s "usually take an action within three years to remove you from credit watch or to downgrade you a half or a whole step. In our case they downgraded us from Aa1 to Aa2."

The current sale offerings — bonds and notes — are secured by the city’s general obligation unlimited tax pledge.

The Aa2 reflects the “sizable tax base that serves as the economic engine of the region but has experienced recent valuation declines with a relatively weak resident income profile,” the Moody’s release notes in part. Milwaukee’s median income is lower than both the state and national figure.

Among the city’s challenges, according to Moody's, is that the tax base has experienced three years of consecutive declines in equalized valuation. The tax base, at $28 billion, recorded declines of 3.1 percent, 5.6 percent, and 5.5 percent over the most recent three-year period.

Still, Moody’s expects the tax base will remain relative stable, “given its role as the economic engine of the region.”

Elsewhere in Wisconsin, Moody’s gives the cities of Madison and Appleton its highest Aaa bond ratings. Green Bay is rated Aa1, while Moody’s has for several years rated the city of Kenosha’s bonds at Aa2.

Jacobson said Kenosha has an above average debt burden, elevated unemployment levels compared with the rest of the state and nation, and, like Milwaukee, median income levels that lag behind other parts of the state. But the city, Jacobson said, has implemented expense controls and lessened declines in property values.

“We do have a stable outlook on the them,” he said of Kenosha.