Fitch Affirms Wisconsin GO Rating at 'AA'; Outlook Stable

Fitch Ratings assigns an 'AA' rating to the following general obligation (GO) bonds of the State of Wisconsin (the state):

--$138.26 million GO bonds of 2011, series C.

The bonds are expected to sell via competitive sale on or about Dec. 6, 2011. In addition, Fitch affirms the following ratings:

--Approximately $6.2 billion in state GO bonds, at 'AA';
--Approximately $414 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

General obligation bonds are secured by 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

--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 has been a persistent feature of the state's finances in recent years, 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.

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

--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

The state's 'AA' GO rating and Stable Outlook recognize its considerable resources, a diverse economy with an above-average manufacturing presence, and a moderate but above-average and rising debt burden. Economic and revenue trends are now improving, with manufacturing and services showing growth after recessionary weakness.

Fiscal performance in recent biennia has been marked by a reliance on nonrecurring items and fund shifts to achieve balance. The state's fiscal 2011 - 2013 biennium adopted budget makes notable progress toward structural balance through steep recurring cuts, including for local aid and employee benefits, although it included a sizable debt restructuring in the first year of the biennium.

State finances began to stabilize during the fiscal 2009-2011 biennium, although additional actions were taken in fiscal 2011 to ensure balance. The state reports fiscal 2011 gross ending balance at $85.6 million (0.6% of fiscal 2011 net appropriations). Revenues for fiscal 2011 totaled $12.9 billion, 6.4% above fiscal 2010 collections. For the fiscal 2011 - 2013 biennium, the state legislative fiscal bureau (LFB) anticipates solid growth, with fiscal 2012 and fiscal 2013 revenues rising 3% and 3.6%, respectively, due largely to projected ongoing recovery in personal income and sales tax collections. Fiscal 2012 year-to-date revenues through October are up 3.7% on an adjusted basis.

The adopted budget assumed net appropriations rising 2.9% in both fiscal 2012 and fiscal 2013, with large increases to Medicaid spending to offset expiring federal stimulus aid and substantial spending cuts in other program areas, including local aid. Although the budget included nonrecurring resources in the form of $339 million in debt restructuring during fiscal 2012, it made notable progress toward structural balance. Moreover, the state repaid longstanding obligations, including $59 million to the state of Minnesota under a terminated tax reciprocity agreement and $234 million for an interfund transfer in a previous biennium that was later successfully challenged in court. Including the final fiscal 2011 balance and subsequent legislation, the state forecasts fiscal 2012 and fiscal 2013 ending with net balances of $7.8 million and $7.7 million, respectively. As such, any revenue underperformance would require corrective action to maintain balance.

Wisconsin's economy is diverse although the manufacturing sector remains large and was a key vulnerability in the recession. Job losses began in June 2008 and accelerated thereafter, with 2009 employment down 4.4%, matching the U.S. decline. Employment declined more slowly in 2010, down 0.6% for the year, even as solid job growth emerged late in the year. Oct. 2011 employment is up 0.2%, slower than the growth trends reported earlier in 2011 and below the 1.1% U.S. rate. Unemployment, at 7.7% in Oct. 2011, is well under the 9% U.S. rate. Personal income per capita in 2010 ranked 25th among the states at 95% of the U.S.

Net tax-supported debt of approximately $12.1 billion as of Dec. 15, 2010 measures 5.6% of 2010 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 consists of general fund annual appropriation bonds issued in 2003 for pension funding; excluding these bonds, net tax-supported debt would measure 4.7% of 2010 personal income. Almost half of tax-supported debt is GO, with the remainder consisting of various revenue and appropriation credits. Pensions were fully funded as of Dec. 31, 2010, the most recent valuation date.

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 (CP), or any other monies made available by the state. The credit quality of the bonds ultimately to be issued to fund the notes and the well-demonstrated market access for such bonds underlie 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.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648897

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