Fitch Ratings has assigned a ‘AA’ rating to the following general fund appropriation bonds of the state of Wisconsin:
–$361.985 million general fund annual appropriation refunding bonds of 2019, series A (forward delivery).
The bonds will be offered by negotiation on a date to be determined based on market conditions.
The Rating Outlook is Stable.
The bonds are secured by annual legislative appropriations from the state’s general fund.
State Appropriation: The rating on the bonds backed by Wisconsin’s appropriation is one notch below the state’s ‘AA+’ Issuer Default Rating (IDR), reflecting the slightly higher degree of optionality associated with payment of appropriation debt. Wisconsin’s ‘AA+’ IDR recognizes its considerable financial flexibility derived from its broad and diverse resource base and legal authority to control its budget, as well as a unique pension structure that contributes both to a low liability burden and lower risk of a significant increase in spending requirements in the future. Fiscal performance has improved in recent biennia with reduced reliance on one-time resources and a stronger liquidity position. This leaves the state well-positioned to address a moderate cyclical downturn.
Economic Resource Base
Wisconsin benefits from a generally diverse economy, although there is some concentration in manufacturing. A key feature of the state’s manufacturing sector is its diversity, with relatively little exposure to automotive versus most Midwestern states. The state’s economic growth during much of the current expansion has been slow and uneven, although gains have accelerated more recently. Personal income is average, with the state in the middle of the pack relative to the U.S.
KEY RATING DRIVERS
Revenue Framework: ‘aa’
Wisconsin’s sound revenue framework relies on broad based taxes that have generally reflected economic performance and have demonstrated growth in line with inflation. Future revenue growth is expected to be consistent with historical performance. Wisconsin has an unlimited legal ability to independently raise revenues, providing significant flexibility to raise operating revenues as needed.
Expenditure Framework: ‘aaa’
The natural pace of spending growth is expected to be slightly above annual revenue growth, reflecting the primary drivers of Medicaid and education, and requiring ongoing spending control. The state benefits from low fixed carrying costs for debt and retiree benefits and has ample ability to cut spending if needed.
Long-Term Liability Burden: ‘aaa’
Long-term liabilities are low and approximate the U.S. state median. The state benefits from strong pension funding and a benefit structure that shares the risk of investment underperformance with beneficiaries. Other post-employment obligations (OPEB) are limited.
Operating Performance: ‘aa’
State fiscal performance in recent biennia has improved, with less reliance on one-time resources and stronger liquidity. Reserves are modest as compared to the state’s operating budget although the state maintains considerable flexibility through careful spending management.
MAINTENANCE OF FINANCIAL RESILIENCE: Wisconsin’s IDR is sensitive to shifts in the state’s fundamental credit characteristics and to continued successful maintenance of financial resilience in light of ongoing efforts to reduce the tax burden and a policy of maintaining low reserves.
The ‘AA’ rating on the general fund annual appropriation bonds, one notch below the state’s IDR, reflects the state’s long-term general credit characteristics and centralization of the lease issuance, budgeting, and payment processes through the Department of Administration. The department is responsible for state debt management and has a long-established history of operating the program. General fund annual appropriation bonds are supported by the state’s pledge of annual appropriation. The current offering is a forward refunding for debt service savings.
For further information on the state of Wisconsin, please see Fitch’s press release from Sept. 24, 2018, ‘Fitch Rates Wisconsin’s $261MM GO Bonds ‘AA+’; Outlook Stable’, available atwww.fitchratings.com.
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Date of Relevant Rating Committee: Aug. 22, 2018
In addition to the sources of information identified in Fitch’s applicable criteria specified below, this action was informed by information from Lumesis.
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