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MOODY'S ASSIGNS Aa2 RATING TO VILLAGE OF GRAFTON'S (WI) $5.0 MILLION TAXABLE GENERAL OBLIGATION BONDS, SERIES 2011A AND $1.4 MILLION GO REFUNDING BONDS, SERIES 2011B

14 Jul 2011

Aa2 RATING APPLIES TO $42.4 MILLION OF POST-SALE GOULT DEBT

Municipality
WI

Moody's Rating

ISSUE

RATING

Taxable General Obligation Refunding Bonds, Series 2011A

Aa2

  Sale Amount

$4,995,000

  Expected Sale Date

07/18/11

  Rating Description

General Obligation Unlimited Tax

 

General Obligation Refunding Bonds, Series 2011B

Aa2

  Sale Amount

$1,445,000

  Expected Sale Date

08/15/11

  Rating Description

General Obligation Unlimited Tax

 

Opinion

NEW YORK, Jul 14, 2011 -- Moody's Investors Service has assigned a Aa2 rating to the Village of Grafton's (WI) $5.0 million Taxable General Obligation Refunding Bonds, Series 2011A and $1.45 million General Obligation Refunding Bonds, Series 2011B. Concurrently, Moody's has affirmed the Aa2 rating on the village's outstanding general obligation debt. Post-sale, the village will have $42.4 million of GOULT debt outstanding.

SUMMARY RATINGS RATIONALE

The bonds are secured by the village's general obligation unlimited tax pledge. Proceeds of the Series 2011A bonds will current refund the village's 2008 Taxable General Obligation Promissory Notes in order to restructure the principal payout of the notes. The 2008 notes have a bullet maturity due in 2013 that the village originally anticipated would be repaid from tax increment revenues from the village's tax increment district (TID) #4. As the expected revenues have not materialized, the Series 2011A bonds will restructure the notes to provide for more level debt service repayment through 2028.The village expects to repay debt service on the bonds from tax increment revenues and also has an agreement in place with the developer to make up any shortfalls in the event that these revenues are insufficient. Proceeds of the Series 2011B bonds will refund the village's 2001 General Obligation Capital Improvement Bonds for an estimated net present value savings of $104,000 (6.7% of refunded par). The Aa2 rating reflects the village's moderately-sized tax base; stable financial operations characterized by healthy reserves; and above average debt burden that is expected to remain manageable.

STRENGTHS

-Favorable location near Milwaukee

-Stable financial operations characterized by healthy reserves

CHALLENGES

-Reduced state aid revenues in fiscal 2012

-Moderate tax base decline in fiscal 2011

DETAILED CREDIT DISCUSSION

MODERATELY-SIZED TAX BASE NEAR MILWAUKEE; RECENT DECLINE IN VALUATION

Despite a recent decline in valuation, the village's tax base is expected to stabilize due to its favorable location 20 miles north of Milwaukee (GO rated Aa1/negative outlook) and recent commercial development. Following average annual growth of 5.7% from 2005 to 2010, the village's full valuation declined by 3.3% in 2011 to a moderate $1.2 billion, reflecting the housing market downturn. Located in Ozaukee County (GO rated Aaa), the village benefits from Aurora Health Care's (revenue debt A3/stable outlook) full service hospital, which opened in 2010 and provides 108 beds, employing approximately 600. Officials report that a new cancer treatment center is under construction on the hospital campus that will create additional employment opportunities and also include commercial office space, which officials anticipate will add approximately $15 million in new valuation. Despite setbacks, officials expect housing development will continue in TID #4. The development of residential condominiums did not materialize as expected, but officials report that a developer is pursuing an alternate housing development plan with apartment style housing to reflect current demand. Favorably, officials report that the commercial development in this TID has been successful to date. Officials report steady employment in the area, evidenced by Ozaukee County's 5.7% unemployment rate in April 2011, which compared positively to state (7.4%) and national (8.7%) levels for the same period. Resident income indices trend better than the state and nation, with per capita income at 122% of the state median and 120.2% of the national median.

STABLE FINANCIAL OPERATIONS CHARACTERIZED BY HEALTHY RESERVES

The Village of Grafton's financial operations are expected to remain stable due to management's demonstrated practices of conservatively budgeting for revenues and maintaining an unreserved General Fund balance of at least 25% of expenditures. Following consecutive years of surpluses, the village ended fiscal 2009 with General Fund reserves (GAAP basis) of $2.98 million, or a strong 36.1% of revenues. In fiscal 2010, management budgeted for the use of $616,000 in reserves, but ended the year with only a modest operating deficit of $67,000. Officials attribute the better than budgeted results to conservatively budgeting for building permit revenues as well as tightening departmental expenditures such as police overtime costs. For the current year fiscal 2011, the village budgeted to apply $590,000 of General Fund balance toward the budget, although officials anticipate only using half of this amount based on year to date trends. The village maintained service and program levels from 2010 and plans to continue holding the line on expenditures through practices such as holding open positions vacant.

Looking ahead to fiscal 2012, the village will experience $133,000 in reductions in state shared revenues, transportation and recycling funding. These cuts are anticipated to be largely offset by the cost saving provisions of the state budget bill from pension and healthcare expenses. Officials expect $104,000 in savings in fiscal 2012 and expect to implement the savings provisions for non-union employees as soon as September 2011. The village will not be able to implement the savings provisions for its unionized employees until most of its current labor agreements expire at the end of 2011 (one contract expires at the end of 2012). For the fiscal 2012 budget, officials expect to comprehensively examine user fees, identify potential expenditure reductions and explore opportunities for combining service delivery with neighboring jurisdictions in an effort to reduce the application of fund balance toward the budget. The village maintains an internal policy of allocating no more than 5% of the General Fund balance towards the next year's budget, but has exceeded this target in recent years.

ABOVE AVERAGE DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE; LIMITED AMOUNT OF FUTURE BORROWING ANTICIPATED

The village's direct debt burden of 3.5% of full value (4.5% overall) is expected to remain manageable given limited future borrowing plans. The village may consider issuing approximately $475,000 of additional debt to provide development incentives for its downtown TID as early as this fall, although officials indicate that plans have not been finalized and that a developer shortfall payment agreement would be required in order to minimize debt service requirements to the village. All of the village's debt is fixed rate and the village is not a party to any interest rate swap agreements.

WHAT COULD CHANGE THE RATING - UP

-Significant expansion of the village's tax base

- Maintenance of strong General Fund reserve levels

WHAT COULD CHANGE THE RATING - DOWN

-Material operating deficits resulting in significant declines in reserves

-Significant deterioration of the village's tax base

KEY STATISTICS

2010 Census population: 11,459 (11.1% increase from 2000)

2011 Full valuation: $1.2 billion (3.3% average annual increase since 2006)

2011 Full value per capita: $102,249

2000 Median family income as a % of state: 124%

2000 Per capita income as a % of state: 122%

Ozaukee County unemployment rate (April 2011): 5.7%

Direct debt burden: 3.5% (4.5% overall)

Payout of principal (10 years): 63.3%

Fiscal 2010 General Fund balance: $2.9 million (35.3% of General Fund revenues)

Fiscal 2010 Unreserved/undesignated General Fund Balance: $2.2 million (27.1% of General Fund revenues)

Post sale general obligation debt outstanding: $42.4 million

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a 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

Thomas Aaron
Analyst
Public Finance Group
Moody's Investors Service

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

Edward Damutz
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

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


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

MOODY'S ASSIGNS Aa2 RATING TO VILLAGE OF GRAFTON'S (WI) $5.0 MILLION TAXABLE GENERAL OBLIGATION BONDS, SERIES 2011A AND $1.4 MILLION GO REFUNDING BONDS, SERIES 2011B
No Related Data.
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