Bond raters like Janesville's economic prospects
Consider the analysis of Moody’s and Standard & Poor’s, two hard-nosed bond-rating companies.
Two years ago, Moody’s upgraded the Janesville School District’s bond rating from A1 to Aa3. Standard & Poor’s gave Janesville its equivalent rating, AA-.
A bond rating for a local government is a lot like a person’s credit rating. And those double-A ratings are remarkably high for a Wisconsin school district.
But a lot of water, if you’ll excuse the expression, has gone over the dam since 2006.
Most significantly, General Motors announced last month it will close its Janesville assembly plant by the end of 2010.
What were Moody’s and S&P’s responses? No change.
The two companies reviewed Janesville’s economy in recent weeks in advance of a school district bond sale and issued the same ratings as they did in 2006.
And yes, they had heard the GM news.
Moody’s latest report states that the GM closure “presents a significant challenge to the local economy.”
However, Moody’s states, GM’s downsizing over the last few decades forced a diversification of the local tax base, and that cushions the effects of a plant closure.
“Favorably, other sectors in the local economy have continued to develop,” Moody’s wrote. “Mercy Health System continues to expand and is now the city’s largest employer with approximately 3,800 employees. Dean Health System and SSM Health Care of Wisconsin have announced plans to open a $140 million hospital and adjacent clinic in 2010. Additionally, economic development efforts leveraging the city’s favorable location along transportation corridors has resulted in new warehousing and distribution businesses.”
A double-A rating is rare among Wisconsin school districts and shows that the bond markets think the Janesville district is on solid financial footing. But it also shows that the Janesville area’s ability to pay the taxes to repay the bonds is considered a good bet, said Carol Wirth of Wisconsin Public Finance Professionals, the school district’s financial adviser for bond sales.
The favorable reports were part of the reason the school district got good interest rates when it sold $37.79 million in bonds Tuesday. The other reason is that it’s a good time to enter the bond market, Wirth said.
The bond issue is the second and final one that will pay for the $70.8 million high school expansion projects now under way.
When district officials estimated the costs of borrowing money for the 2006 referendum, they projected a 5.25 percent interest rate. The lowest bidder Tuesday offered 4.365 percent.
The first bond issue on the high school projects had a similar favorable rate. The difference between the projected 5.25 percent rate and the actual rates for both bond issues is a $5.4 million in savings to Janesville taxpayers over the 20-year course of the bond payback schedule, Wirth said.