Fitch Ratings has assigned an 'AA-' rating to $186.6
million State of Wisconsin general obligation (GO) bonds of 2005,
series D, for bids on July 26. The bonds are due May 1, 2007-2025 and
are callable on May 1, 2016 and thereafter at par. Fitch also affirms
the 'AA-' rating on the state's $4.9 billion outstanding GO bonds.
The rating reflects the strong security afforded GO debt from a first claim on all state revenues by a statutory irrevocable appropriation, as well as the state's moderate but rising debt burden and considerable economic resources. Tax cuts followed by the recession reduced revenues, leading to remedial actions including use of surplus, borrowing, and other one-time measures. Significant one-time measures are still being deployed, including those in the proposed 2005-07 biennium budget, although the overall imbalance is reduced with economic and revenue improvement underway. The Governor proposed his budget on Feb. 8, 2005, and on July 5 the legislature adopted its version of the 2005-07 biennial budget. The Governor has until Aug. 11 to use veto powers. Despite the lack of budget cohesion, mechanisms remain in place for continuing appropriations until a new budget is enacted.
The state's net tax-supported debt totals $9.2 billion, or 5.5% of personal income -- a moderate, although above-average, burden. After deducting about $1.5 billion in net proceeds of pension bonds outstanding, the burden is lessened to 4.6%. The proposed capital budget continues the annual issuance of about $450 million of GO bonds payable from general fund revenues.
Economic and revenue growth in the 1990s allowed the state to absorb the statutory increase in education funding to the two-thirds level while building its budgetary balance to over $800 million, or 8% of revenues, by the close of fiscal 2000. However, enacted tax cuts and then recession led to a 15% reduction in personal income tax revenues through fiscal 2003, offset by a tobacco securitization, debt restructuring, and funds shifts. The 2003-2005 biennial budget closed what had been a $3.2 billion projected funding gap, including a $282 million fiscal 2003 general fund deficit. Education funding was reduced below the two-thirds level; however, taxes were not increased, and large one-time measures were budgeted. Operating pressure continued with the recognition in early 2004 of a biennium Medicaid funding shortfall and lowering of revenue estimates. Revenue estimates were subsequently raised, with the income and sales taxes now estimated to grow 8.8% and 3.2%, respectively, in fiscal 2005. The projected balance is now $49.4 million on June 30, 2005 as of the May 2005 update with elimination of shortfalls in medical assistance, senior care, and energy costs.
For the 2005-07 biennium, both the executive and legislative budgets provide for $26 billion in general fund spending authority. Both estimate closing with less than $3 million general fund balance on June 30, 2007 after providing for the $65 million statutory reserve, and include $36 million to initially fund the budget stabilization fund. Both budgets close a projected $1.6 billion funding gap, half the previous biennium level, through the use of spending cuts, revenue growth, and one-time resources. There remains uncertainty over the receipt of tribal gaming revenues, now from two tribes. Key issues to be resolved remain education funding, property tax relief, and transportation. Additionally, medical assistance remains an area that the state is addressing.
Economic and revenue assumptions remain very reasonable for the 2005-07 biennium. The May 2005 legislative fiscal bureau update projects stronger fiscal 2005 tax revenue growth, rising 6.4% from a year ago. General fund recorded revenues on a budgetary basis rose 7.1% as of June 30, 2005. Tax revenue growth in fiscal 2006 is estimated at 4.3% with 4.5% for fiscal 2007.
Wisconsin's underlying economic strength has been evident. Unlike the other Great Lake states, manufacturing losses of 15% suffered during the recession were substantially offset by gains in other areas, resulting in only a 2% decline in total employment from 2000-2003. Improvement has since coincided with the U.S., with 1% employment growth in 2004. While employment in June 2005 increased 0.9% over the same month the previous year, it lagged the comparable 1.7% U.S. rate of gain. Personal income in the state rose 5.5% in 2004, above prior years but also lagged the national pace of growth. First-quarter 2005 personal income rose from a year earlier but lagged the nation.
Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.
The rating reflects the strong security afforded GO debt from a first claim on all state revenues by a statutory irrevocable appropriation, as well as the state's moderate but rising debt burden and considerable economic resources. Tax cuts followed by the recession reduced revenues, leading to remedial actions including use of surplus, borrowing, and other one-time measures. Significant one-time measures are still being deployed, including those in the proposed 2005-07 biennium budget, although the overall imbalance is reduced with economic and revenue improvement underway. The Governor proposed his budget on Feb. 8, 2005, and on July 5 the legislature adopted its version of the 2005-07 biennial budget. The Governor has until Aug. 11 to use veto powers. Despite the lack of budget cohesion, mechanisms remain in place for continuing appropriations until a new budget is enacted.
The state's net tax-supported debt totals $9.2 billion, or 5.5% of personal income -- a moderate, although above-average, burden. After deducting about $1.5 billion in net proceeds of pension bonds outstanding, the burden is lessened to 4.6%. The proposed capital budget continues the annual issuance of about $450 million of GO bonds payable from general fund revenues.
Economic and revenue growth in the 1990s allowed the state to absorb the statutory increase in education funding to the two-thirds level while building its budgetary balance to over $800 million, or 8% of revenues, by the close of fiscal 2000. However, enacted tax cuts and then recession led to a 15% reduction in personal income tax revenues through fiscal 2003, offset by a tobacco securitization, debt restructuring, and funds shifts. The 2003-2005 biennial budget closed what had been a $3.2 billion projected funding gap, including a $282 million fiscal 2003 general fund deficit. Education funding was reduced below the two-thirds level; however, taxes were not increased, and large one-time measures were budgeted. Operating pressure continued with the recognition in early 2004 of a biennium Medicaid funding shortfall and lowering of revenue estimates. Revenue estimates were subsequently raised, with the income and sales taxes now estimated to grow 8.8% and 3.2%, respectively, in fiscal 2005. The projected balance is now $49.4 million on June 30, 2005 as of the May 2005 update with elimination of shortfalls in medical assistance, senior care, and energy costs.
For the 2005-07 biennium, both the executive and legislative budgets provide for $26 billion in general fund spending authority. Both estimate closing with less than $3 million general fund balance on June 30, 2007 after providing for the $65 million statutory reserve, and include $36 million to initially fund the budget stabilization fund. Both budgets close a projected $1.6 billion funding gap, half the previous biennium level, through the use of spending cuts, revenue growth, and one-time resources. There remains uncertainty over the receipt of tribal gaming revenues, now from two tribes. Key issues to be resolved remain education funding, property tax relief, and transportation. Additionally, medical assistance remains an area that the state is addressing.
Economic and revenue assumptions remain very reasonable for the 2005-07 biennium. The May 2005 legislative fiscal bureau update projects stronger fiscal 2005 tax revenue growth, rising 6.4% from a year ago. General fund recorded revenues on a budgetary basis rose 7.1% as of June 30, 2005. Tax revenue growth in fiscal 2006 is estimated at 4.3% with 4.5% for fiscal 2007.
Wisconsin's underlying economic strength has been evident. Unlike the other Great Lake states, manufacturing losses of 15% suffered during the recession were substantially offset by gains in other areas, resulting in only a 2% decline in total employment from 2000-2003. Improvement has since coincided with the U.S., with 1% employment growth in 2004. While employment in June 2005 increased 0.9% over the same month the previous year, it lagged the comparable 1.7% U.S. rate of gain. Personal income in the state rose 5.5% in 2004, above prior years but also lagged the national pace of growth. First-quarter 2005 personal income rose from a year earlier but lagged the nation.
Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.
© 2005 Business Wire
