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New Issue:

MOODY'S ASSIGNS Aa2 RATING TO CITY OF HUDSON'S (WI) $3.5 MILLION GO PROMISSORY NOTES, SERIES 2011A

28 Apr 2011

Aa2 RATING APPLIES TO $10.5 MILLION OF POST-SALE GO DEBT

Municipality
WI

Moody's Rating

ISSUE

RATING

General Obligation Promissory Notes, Series 2011A

Aa2

  Sale Amount

$3,530,000

  Expected Sale Date

05/02/11

  Rating Description

General Obligation Unlimited Tax

 

Opinion

NEW YORK, Apr 28, 2011 -- Moody's Investors Service has assigned a Aa2 rating to the City of Hudson's (WI) $3,530,000 General Obligation Promissory Notes, Series 2011A. Concurrently, Moody's has affirmed the Aa2 rating on the city's outstanding general obligation debt. Post-sale, the city will have $10.5 million of outstanding general obligation debt.

SUMMARY RATING RATIONALE

The notes are secured by the city's general obligation unlimited tax pledge. Proceeds of the notes will fund capital projects in the city and advance refund outstanding General Obligation Promissory Notes, Series 2005A. Assignment and affirmation of the Aa2 rating reflects the city's moderately sized and somewhat affluent tax base favorably located near the Twin Cities metro area (Minneapolis GO rated Aaa/stable outlook, St. Paul rated Aa1/positive outlook), stable financial operations supported by healthy reserves, and a modest debt burden with rapid principal amortization.

STRENGTHS:

- Availability of land for future development in the long-term

- Above average socioeconomic profile

CHALLENGES:

- Declines in tax base

- Potential for significant revenue limitations for the next two fiscal years

DETAILED CREDIT DISCUSSION

MODERATELY-SIZED AND DIVERSE TAX BASE ADVANTAGEOUSLY LOCATED NEAR THE TWIN CITIES

Located 20 miles east of the Twin Cities metro area along I-94, the City of Hudson encompasses six square miles in St. Croix County (GO rated Aa1). Moody's expects its moderately sized $1.4 billion tax base to benefit long term from its location near the Twin Cities metropolitan area. Significant residential construction fueled by its proximity to the Twin Cities spurred strong historical growth in the city's tax base. Population grew 37.6% from 1990 to 2000, and an estimated 35.2% from 2000 through 2010. While the tax base grew at double-digit annual rates through 2005, growth has since stalled, leading to 0.2% tax base declines in 2008 and 2009 and a decline of 7.3% in 2010. Officials report the tax base decline is attributable to foreclosure sales, and a decline in the valuation of commercial land and improvements. While officials report ongoing investment in the community including redevelopment of the city's downtown area and an assisted living and memory care facility, the city's equalized value could decline again in 2011 if new construction and improvements do not offset declines in existing properties.

Roughly 60% to 70% of residents commute across the state border to employment in the Twin Cities metropolitan area, though the city has made diversifying its local employment base a high priority. Income indices among residents are above state averages with per capita income and median family income at 126.6% and 120.9%, respectively, of state levels. At 7.6% in February 2011, the unemployment rate for St. Croix County is below the state (8.5%) and national (9.5%) levels during the same time period.

STABLE FINANCIAL OPERATIONS SUPPORTED BY HEALTHY GENERAL FUND RESERVES

We expect the city's financial profile will remain stable due to healthy General Fund reserves. For fiscal 2009, the city made a planned draw on General Fund reserves to complete the $2.5 million purchase of a building to house the city's library and police department. The $1.5 million draw on reserves reduced the General Fund reserve to $3.5 million, or a still healthy 30.5% of 2009 General Fund revenues. For fiscal 2010, preliminary results indicate a $770,000 operating surplus due to the sale of two buildings, including the former library building, increased building and inspection fees, and reduced expenditures across departments. Officials anticipate the General Fund reserve to increase by $700,000, leading to a General Fund reserve of $4.2 million, or a healthier 39.2% of 2009 revenues. The city's General Fund reserve policy calls for 12.5% designated for working capital and between 10% to 15% of budgeted expenditures in undesignated reserves.

Officials report that with major revenues tracking on budget, building inspection and permit fees coming in higher than budgeted amounts, expenditures tracking under budget, they anticipate balanced operations for fiscal 2011. Property taxes comprise the majority of the city's operating revenues at 69.5% in fiscal 2009, followed by intergovernmental aid at 11.7%. The state is currently finalizing its fiscal 2012 budget, which starts July 1, 2011 and may lead to reductions in local government revenues from the state. City officials have identified the potential loss in revenues at $240,000 with some of the revenue loss mitigated by reduced retirement expenditures.

MODEST DEBT BURDEN WITH RAPID PAYOUT

We expect the city's below average overall debt burden to remain manageable due to rapid principal payout. The majority (53.8%) of the city's overall debt burden is directly attributable to the Hudson School District (Aa1). The city's direct debt burden is a modest 0.7% with rapid principal amortization of 96% in 10 years. No additional borrowing is planned for 2011. All of the city's outstanding debt is in fixed rate mode, and the city is not a party to any interest rate swap agreements.

WHAT COULD MOVE THE RATING UP:

- Strengthening of the city's liquidity and General Fund reserves

-Substantial economic expansion and tax base growth

WHAT COULD MOVE THE RATING DOWN:

- Continued deterioration of the city's tax base or weakening of its demographic profile

- Declines in the city's General Fund balance and liquidity

KEY STATISTICS

2000 Census population: 8,775 (37.6% increase since 1990)

2010 Estimated population: 11,865 (35.2% increase since 2000)

2010 Full value: $1.45 billion

2010 Full value per capita (estimate): $121,903

2000 Per capita income: $26,921 (126.6% of WI; 124.7% of US)

2000 Median family income: $63,953 (120.9% of WI; 127.8% of US)

St. Croix unemployment rate (February 2011): 7.6% (WI at 8.5%, US at 9.5%)

Debt burden: 2.0% (0.7% direct)

Principal payout (10 years): 96%

Fiscal 2009 General Fund balance: $2.5 million (30.6% of revenues)

Post-sale GOULT debt outstanding: $10.2 million

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, and public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Kathryn Gregory
Analyst
Public Finance Group
Moody's Investors Service

Elizabeth Foos
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aa2 RATING TO CITY OF HUDSON'S (WI) $3.5 MILLION GO PROMISSORY NOTES, SERIES 2011A
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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