Fitch Ratings: Fitch affirms and withdraws rating on Milwaukee Public Schools, WI's 2017C Bonds; Affirms outstanding
Fitch Affirms & Withdraws Rating on Milwaukee Public Schools, WI's 2017C Bonds; Affirms Outstanding
Fitch Ratings has affirmed at 'A' and withdrawn the rating on Milwaukee Public School, WI's series 2017C bonds issued by the Redevelopment Authority of the City of Milwaukee for commercial reasons.
In addition, Fitch also has affirmed the following ratings:
--Issuer Default Rating (IDR) of Milwaukee Public Schools (WI) at 'A+';
--$10 million redevelopment lease revenue bonds, series 2017B issued by the Redevelopment Authority of the City of Milwaukee, WI (Tax Credit Bonds) at 'A';
--$38 million federally taxable redevelopment lease revenue bonds, series 2015A (MPS - Qualified School Construction Bonds [QSCB] - Direct Payment Subsidy) issued by the Redevelopment Authority of the City of Milwaukee, WI at 'A';
--$18.3 million redevelopment lease revenue bonds, series 2016A (Milwaukee Public Schools) issued by the Redevelopment Authority of the City of Milwaukee, WI at 'A';
--$6.3 million federally taxable redevelopment lease revenue bonds, series 2016B (Milwaukee Public Schools - Qualified Energy Conservation Bonds - direct payment subsidy) issued by the Redevelopment Authority of the City of Milwaukee, WI at 'A';
--$1.5 million federally taxable redevelopment lease revenue bonds, series 2016C (Milwaukee Public Schools - Qualified Zone Academy Bonds) issued by the Redevelopment Authority of the City of Milwaukee, WI at 'A';
-- $29.7 million redevelopment lease revenue bonds, series 2017 issued by the Redevelopment Authority of the City of Milwaukee, WI at 'A'.
The Rating Outlook is Stable.
The bonds are limited obligations of the authority, payable from rental payments by MPS under a lease between the authority and Milwaukee Public Schools (MPS).
Analytical Conclusion: The 'A+' IDR reflects MPS's narrow but stable operating margins and moderate long-term liability profile. Gap-closing ability is adequate, given moderate expected revenue volatility and strong expenditure flexibility. Fitch believes the city's management of the MPS funds and provision of liquidity is a positive credit factor. The 'A' lease obligation rating is one notch below the IDR, reflecting the slightly higher optionality of the lease payment.
Economic Resource Base
Milwaukee Public Schools provide pre-K-12 education to approximately 75,500 students. Its taxing jurisdiction is coterminous with the city's (IDR AA/Stable). The city serves as the economic engine for the surrounding region and has a fairly diverse economic and employment base, but residents exhibit below-average wealth, and a relatively large proportion are below the poverty level. The local economy maintains a reduced but still above-average reliance on manufacturing that in the past has created vulnerabilities to recessionary employment shifts. MPS derives approximately 60% of its revenues from the state of Wisconsin (IDR AA+/Stable). The state's economic growth during much of the current expansion has been slow and uneven, although gains have recently accelerated.
KEY RATING DRIVERS
Revenue Framework: 'bbb'
Stagnant growth prospects for revenues are heavily influenced by the state's revenue growth prospects, which Fitch believes will influence future increases in the statutory per pupil revenue limit, and a declining enrollment trend. The district has little independent legal ability to raise revenues.
Expenditure Framework: 'a'
MPS has demonstrated a solid ability to control expenditures and operates within a fairly flexible labor environment. Carrying costs are moderate, but Fitch expects the natural pace of expenditure growth to exceed that of revenues, necessitating ongoing expenditure management.
Long-Term Liability Burden: 'aa'
The long-term liability burden is moderate relative to the resource base. The district participates in a well-funded pension plan, bolstered by prior issuance of pension obligation bonds.
Operating Performance: 'a'
Financial operations are characterized by careful expenditure control in response to strict revenue limits. Reserves, although nominally narrow, should provide an adequate safety margin in a downturn given expected decreased levels of revenue volatility and adequate budgetary flexibility and control.
Revenue Volatility: The 'A+' IDR assumes a low level of revenue volatility. Increased volatility could change Fitch's assessment of the adequacy of reserves and lead to a downgrade.
Reserve Levels: The ratings assume maintenance or increases in reserve levels after an expected draw in 2017. Further declines in reserves would put negative pressure on the rating.
For more information, please see the last Rating Action Commentary on Milwaukee Public Schools released on Dec. 7, 2017: https://www.fitchratings.com/site/pr/1033654
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Date of Relevant Rating Committee: Dec. 6, 2017
In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.
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