posted on October 20, 2013
(Janesville, WI) - By Jim Leute, Gazette
An upcoming bond issue to pay for capital projects in Rock County will carry favorable ratings, an indication that the county has a stable, growing economy that's highly capable of servicing its debt.
Earlier this summer, county officials presented their financial case to both Standard & Poor's and Moody's Investors Service, two of the top bond rating firms in the country.
Here are five things to know about the ratings:
1. The reasons for borrowing. The county plans to issue about $6 million in general obligation promissory notes to pay for projects that include highway reconstruction.
2. S&P's rating. Standard & Poor's rated the upcoming bond issue as “AA/stable,” which means the county has a strong capacity to meet financial commitments. The rating is two notches below the company's top rating.
S&P based its rating on what it perceives to be the county's diversifying economic base, economic indicators that range from good to strong, a strong county government fund balance governed by good financial management and moderate debt levels.
S&P noted that the county's equalized value continues to decrease, primarily because of decreasing commercial property values. However, equalized value remains strong on a per-capita basis.
“Although historically dominated by automotive and other manufacturing, the area has transitioned into a more diverse economic area,” bond raters said. “Economic development along the Interstate 90 corridor has recently fueled additional growth in recent history.”
3. Moody's rating. Moody's gave it a rating of “Aa1.” That's one notch below the top spot.
The company based its rating on the county's sizeable and diverse tax base, county government's healthy general fund balance, sound financial management and well-funded pension plan.
As S&P noted, Moody's also said the county faces challenges of declining value in its tax base.
“Despite recent declines in value, the county's tax base should stabilize over the medium term due to ongoing commercial and industrial development and its favorable location near several large metropolitan areas,” Moody's raters concluded.
“The county's financial operations are expected to remain strong based on its recently demonstrated ability to balance operations, despite strict levy limits and other budgetary pressures.”
4. No changes in ratings. Both ratings are affirmations of those the two companies assigned to county bond issue in previous years.
5. Why it matters. When the county enters the bond market to finance debt, the buyers look at the strength of the issuer. That is, a stable and growing local economy has a stronger likelihood of servicing the bond debt. Similar to a personal or business loan, the bond buyers as lenders need to be assured that their exposure is not only covered but that there's a sufficient level of return on their investment.
A favorable bond rating means lower interest rates. Lower interest rates mean lower debt service costs for Rock County taxpayers.