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MOODY'S ASSIGNS Aa2 RATING TO THE CITY OF SUN PRAIRIE'S (WI) $4.8 MILLION GENERAL OBLIGATION PROMISSORY NOTES, SERIES 2010

18 Oct 2010

Aa2 RATING APPLIES TO $56.2 MILLION IN POST-SALE GOULT DEBT

Municipality
WI

Moody's Rating

ISSUE

RATING

General Obligation Promissory Notes, Series 2010

Aa2

  Sale Amount

$4,780,000

  Expected Sale Date

10/19/10

  Rating Description

General Obligation Unlimited Tax

 

Opinion

NEW YORK, Oct 18, 2010 -- Moody's Investors Service has assigned a Aa2 rating to The City of Sun Prairie's (WI) $4.8 million General Obligation Promissory Notes, Series 2010. Concurrently, Moody's has affirmed the Aa2 long-term rating on the city's $56.2 million of outstanding general obligation debt, including the current offering.

RATINGS RATIONALE

The Series 2010 notes, which are secured by the city's general obligation unlimited tax pledge, will finance various street and sanitary/sewer improvement projects. Additionally, the notes will currently refund select maturities of the city's outstanding Series 2001D and 2003 bonds. The refunding will restructure the bonds' repayment period in response to downward changes in the city's economic conditions. Assignment and affirmation of the Aa2 rating reflects Sun Prairie's moderately sized tax base and favorable location near Madison (rated Aaa) enhanced by wealth indices that are slightly above average, consistently well managed financial operations which enjoy healthy and liquid reserve levels, and a high debt burden with rapidly retired direct debt.

DIVERSE TAX BASE BENEFITS FROM PROXIMITY TO MADISON

Located in central Dane County (rated Aa1/stable) 10 miles northeast of downtown Madison, the city of Sun Prairie encompasses 11.5 square miles. Its sizeable $2.5 billion tax base has grown at a moderate 3.1% five year average annual rate, though the most recent valuation declined by 5.1% as a result of weak conditions in the housing market. Sun Prairie has experienced a long period of development, with the city's population growing 33% between 1990 and 2000, and an estimated 29.8% since 2000. Having a favorable location near Madison, availability of developable land, and recently completed transportation infrastructure upgrades have all contributed to this growth. A large portion of the city remains ready for residential development. While management notes that new residential construction has been flat, existing home sales continue, reflecting the desirability of the community. Additionally, commercial growth continues, as evidenced by recent openings in the city's business park.

Sun Prairie continues to plan for long term growth, enacting a comprehensive development plan. The document allows the city to control where and how development occurs in the future, with special attention to the city's west side which is emerging as one of the city's primary growth areas. To further encourage development, the city has established several TIF districts which focus on heavy/light industry (TIF 6,7), medical (TIF 9), and downtown redevelopment (TIF 8, 10). Management notes that TIF #9, which contains St. Mary's Hospital Corporation's stand alone emergency room, is performing well with continued potential for the development of a full-scale hospital. The city's business park (TIF 7) continues to perform well, with a few open lots being marketed for development, while the heavy industry district (TIF 6) continues to perform below expectations, largely as a result of the broader economic conditions. Overall, the Madison economy benefits from being anchored by significant institutional presences (Madison is home to the University of Wisconsin's main campus, and the state capital), the metro area has historically fared better during economic down turns. City wealth levels exceed state indices and Sun Prairie's August 2010 unemployment rate of 5.4% is below state and national rates of 7.7% and 9.5%, respectively.

SOUND FINANCIAL OPERATIONS CHARACTERIZED BY HEALTHY RESERVES

We believe the city's financial profile will likely remain sound as a result of healthy reserve levels and a trend of conservative budgeting practices. The city's General Fund enjoyed successive operating surpluses which led to a growth in reserves from $2.1 million, or 21.6% of reserves in fiscal 2000 to $6.9 million, or a healthy 36.4% of revenues, in fiscal 2007. Following a deficit in 2008 of $207,000, fiscal 2009's budget included a $296,000 operating deficit. Favorably, actual results show a more modest $51,000 draw on reserves, which was attributable to total revenues exceeding budget by $112,000. Additionally, expenditures yielded a positive budget variance of $183,000 due to the elimination of two police department positions. The city finished the year with a General Fund balance of $6.68 million, or 32.5% of revenues. Roughly $1.4 million was designated for equipment replacement and $3 million is undesignated unreserved, equal to 14.5% of revenues, in line with the formal 15-18% target.

While the city's 2010 budget outlined the use of $96,000 of reserves, current estimates depict the year ending with a $50,000 surplus. While investment income and building permit fees are both set to come in $150,000 below budget, management notes that expenditures as a whole are tracking below budget. An estimated $75,000 was saved through the retirement of five police officers, and the subsequent hiring of lower salaried officers. Further reflecting management's conservative budgeting nature, $240,000 in contingencies were included in the budget. Management notes that only $50,000 has been tapped thus far. The expected surplus would bring reserves to $6.73 million, or 32.7% of 2009 revenues. Looking ahead to fiscal 2011, management expects balanced operations. We recognize Sun Prairie's demonstrated record of maintaining fiscal discipline and believe the city's historical pattern of tight budget oversight guided by formalized policies, multiyear planning, and healthy reserve levels will likely position it to meet future budgetary challenges as they arise.

HIGH DEBT BURDEN DRIVEN LARGELY BY CDA BORROWING AND OVERLAPPING ISSUERS

Including both its Community Development Authority (CDA) and general obligation debt, Sun Prairie's direct debt burden is an above average 3.4%, yielding a similarly above average $3,245 direct debt per capita which has steadily increased from a moderate $1,798 in 2001. The city's high overall debt burden (8.5%) is primarily attributable to the borrowing of overlapping public issuers. While the restructuring component of the current sale extends the amortization of the Series 2001D and 2003 bonds, total amortization is still aggressive, with 86.6% of principal retired in ten years. About one third of the city's direct debt is CDA related, payable from TIF revenues helping to partially dampen the impact on the general taxpayer. As per a development agreement in place, certain developers are making payments to help TIF 6 cover some of its expenses due to valuation benchmark shortfalls. Sun Prairie recently adopted a TIF policy which codifies the practices of the city, detailing the terms and circumstances under which TIF financing would occur. Adjusting for its CDA issuance, Sun Prairie's direct debt burden moderates to a lower 2.3%. Given the size of the city's existing debt burden, general weakening of EAV growth, and additional bonding authority expected to the exercised by Sun Prairie School District (rated A1), future credit reviews will focus on the city's debt profile, but given the city's debt management practices, such as debt levy targets and the prohibition of borrowing for equipment needs, it should remain manageable.

What could change the rating - DOWN

- Material multi-year declines in fund balances and liquidity

-Tax base erosion leading to valuation figures below similarly rated entities

- Significant growth in the district's direct debt burden

What could change the rating - UP

-Economic expansion as reflected in tax base growth

- Increase in General Fund reserves

KEY STATISTICS

2008 Population (Estimate): 25,810 (26.7% increase since 2000)

2010 Full Valuation: $2.5 billion

2010 Full Value per Capita (Estimate): $94,836

Direct Debt (Including lease obligations): 3.4%

Overall Debt Burden: 8.5%

Payout (10 years): 86.6%

Fiscal 2009 General Fund Balance: $6.68 million (32.5% of revenues)

2000 Per Capita Income as a % of State: 109.4% (107.8% of US)

2000 Median Family Income as a % of State: 115.7% (122.3% of US)

Post-sale GOULT debt outstanding: $56.2 million

The principal methodology used in rating the City of Sun Prairie, WI was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

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

Mark G. Lazarus
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


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MOODY'S ASSIGNS Aa2 RATING TO THE CITY OF SUN PRAIRIE'S (WI) $4.8 MILLION GENERAL OBLIGATION PROMISSORY NOTES, SERIES 2010
No Related Data.
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