×

Fitch Rates $303MM Wisconsin GO Bonds 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AA' rating to the following general obligation (GO) bonds of the State of Wisconsin:

--$302.6 million GO bonds of 2012, series B.

The bonds will be sold via competitive sale on Oct. 17, 2012.

In addition, Fitch has affirmed the following ratings of the state:

--$6.8 billion in GO bonds, at 'AA';

--$622 million in GO extendible municipal commercial paper (EMCP) notes, at 'F1+'.

The Rating Outlook on the long-term ratings is Stable. The EMCP rating does not carry an Outlook.

SECURITY

The state's full faith, credit, and taxing powers, as well as the statutory irrevocable appropriation of a first lien on all state revenues for debt service.

KEY RATING DRIVERS

--MODERATE LIABILITY POSITION: State tax-supported debt is a moderate though above-average and rising burden on resources. Pensions are fully funded.

--BROAD, DIVERSE ECONOMY: The economy is broad and diverse with considerable economic resources, albeit with an above-average manufacturing presence.

--PROGRESS ON STRUCTURAL IMBALANCE: Structural budget imbalance was a persistent feature of the state's finances in recent biennia, with the state relying on nonrecurring items and shifting general fund expenses to other funds. The adopted budget for the fiscal 2011 - 2013 biennium made notable progress toward structural balance.

--MINIMAL RESERVES: Despite reserve funding provisions, financial reserves were minimally funded in recent years and were depleted as part of budget solutions in the last downturn.

--NOTES CARRY GO PLEDGE: EMCP notes are general obligations of the state; outstanding notes have never been extended. Resolutions authorizing long-term bond issuance to fund the notes have been executed.

CREDIT PROFILE

Wisconsin's 'AA' long-term GO bond rating and Stable Outlook recognize its considerable resources, a diverse economy with an above-average manufacturing presence, a moderate but above-average debt burden and fully funded pensions. In past biennia the state's practice was to rely on nonrecurring items and fund shifts in times of revenue weakness to achieve budgetary balance. The budget for the fiscal 2011 - 2013 biennium (which began July 1, 2011) marked a notable departure from past practice, with deep structural cuts, including to employee benefits and local aid, to achieve forecast balance. As of May 2012, when the state updated its biennial outlook, fiscal years 2012 and 2013 are forecast to end with net balances of $164.7 million and $89.5 million, respectively. The ending balance for fiscal year 2012, as projected in May 2012, assumes a $45.4 million deposit to the budget stabilization fund, the largest deposit to the fund since fiscal 2007.

The state's revenue forecast for the fiscal 2011 - 2013 biennium has shifted since budget adoption, when the state anticipated revenue growth of 3% in fiscal 2012 and 3.6% in fiscal 2013. The Department of Revenue's (DOR) May 2012 forecast estimated revenues of $13.4 billion in fiscal 2012 (3.7% higher than fiscal 2011 actual revenues) and $13.7 billion in fiscal 2013 (2.1% above fiscal 2012 but slightly below the original forecast). The changes reflected in particular higher individual income tax collections during fiscal 2012 compared to the previous forecast. Preliminary actual fiscal 2012 general purpose revenues, as reported by DOR, rose 4.7% from fiscal 2011, driven by individual and corporate income tax collections; preliminary fiscal 2012 revenues were 0.9% over the May 2012 forecast.

Net appropriations in fiscal 2012 and fiscal 2013 are budgeted to rise 2.1% and 3.5%, respectively. Appropriations included large increases to state Medicaid funding to offset expiring federal stimulus aid and substantial spending cuts in other program areas, including local aid. The budget included significant recurring savings from changes to collective bargaining, certain aspects of which are subject to litigation. Although the budget included nonrecurring resources in the form of $339 million in debt restructuring during fiscal 2012, it also repaid longstanding obligations, including $59 million to the state of Minnesota under a terminated tax reciprocity agreement and $234 million to repay a past interfund transfer.

Wisconsin benefits from a diverse economy, although its large manufacturing sector is a source of vulnerability. The state's recovery from the recession has been slow and uneven with earlier solid job gains softening. Strong gains in manufacturing have been offset by losses in construction, government, financial activities, and professional and business services. August 2012 employment is down 0.2% year-over-year, the eleventh month of job losses after more than a year of job gains; for the U.S. overall, employment rose 1.4% in August 2012. Unemployment, at 7.5% in August 2012, is under the 8.1% U.S. rate for the same period. Wisconsin ranks 25th in personal income per capita in 2011, at 95% of the U.S. average. The state forecasts slow employment and personal income gains through 2014, its forecast period, which Fitch believes to be reasonable.

Net tax-supported debt of approximately $12.6 billion as of Dec. 15, 2011 measures 5.5% of 2011 personal income, a moderate but above-average level. Debt has grown in recent years, including $1.5 billion in general fund annual appropriation bonds issued in early 2009 to provide budget relief by purchasing tobacco settlement revenues previously sold to the Badger Tobacco Asset Securitization Corporation. A further $1.8 billion in general fund annual appropriation bonds were issued in 2003 for pension funding. Almost half of tax-supported debt is GO, with the remainder consisting of various revenue and appropriation credits.

The state's obligations to retirees are limited. Pensions were fully funded as of Dec. 31, 2010, the valuation date in the statewide system's most recent comprehensive annual financial report. On a combined basis, the state's net tax-supported debt and pension obligations measure 5.5% of personal income, below the median for U.S. states rated by Fitch.

The state's GO EMCP notes carry its full faith and credit pledge. As notes mature, they are paid from rollover notes, GO bonds authorized to fund the notes, GO commercial paper, or any other monies made available by the state. The credit quality of the bonds ultimately to be issued to fund the EMCP notes, along with the well-demonstrated market access for such bonds, underlies the 'F1+' rating.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. State 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. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com
or
Primary Analyst:
Douglas Offerman, +1-212-908-0889
Senior Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Marcy Block, +1-212-908-0239
Senior Director
or
Committee Chairperson:
Karen Krop, +1-212-908-0661
Senior Director

Source: Fitch Ratings