Aa3 RATING APPLIES TO $22.1 MILLION OF POST-SALE GOULT DEBT
General Obligation Promissory Notes, Series 2011
Expected Sale Date
NEW YORK, Jun 19, 2011 -- Moody's Investors Service has assigned an Aa3 rating to the City of
Elkhorn's (WI) $3.7 million General Obligation Promissory Notes, Series 2011.
Concurrently, we have affirmed the Aa3 rating on the city's outstanding general
obligation unlimited tax-backed debt of $22.1 million, including the current
SUMMARY RATINGS RATIONALE
The Series 2011 notes will provide financing for certain street improvements and
related water utility and sanitary sewer utility costs and refund outstanding
General Obligation Community Development Bonds, Series 2001. The Series 2001
bonds were originally issued to provide financial assistance to community
development projects by paying project costs of Tax Incremental District No. 3.
The Aa3 rating reflects the city's healthy and stable financial operations;
small economy with an advantageous location; and above average but manageable
- Stable economic base that benefits from favorable location in southeast
-Satisfactory financial operations characterized by stable reserve levels
-Declines in equalized assessed valuation
-Some exposure to potential state aid reductions in fiscal years 2012 and 2013
DETAILED CREDIT DISCUSSION
MODESTLY SIZED TAX BASE LOCATED IN SOUTHEAST WISCONSIN
Located in southeast Wisconsin (rated Aa2/ stable outlook), the city is
centrally located with interstate access to Chicago (rated Aa3/stable outlook)
and Milwaukee (Aa1/ negative outlook). The city's tax base, which currently
stands at a modestly-sized $684 million, will continue to see a slight decline
in growth in the near term due to limited residential development and decreasing
residential values. The city's tax base saw a 6.6% drop in the 2010 and 3.0% in
2009 in tax valuation, due primarily to declining residential values with
commercial and industrial values holding value. However, the annual equalized
valuation growth has averaged a modest 2.8% over the past five years
and officials project an increase in 2011 valuation due to Tax Increment
District No. 2 closing adding the district's valuation to the tax
base. Officials anticipate that this will occur in 2011 which could
potentially increase the 2011 levy for the 2012 budget by at least 5%
($200,000).The Elkhorn Business Park, established in the late 1970's,
is currently located within the Tax Increment District No. 2 offering a diverse
economic base of professional services, commercial offices, and manufacturing
The city of Elkhorn's wealth levels approximate state medians, while the
Walworth County (Aa1) April 2011 unemployment rate of 7.8% was slightly above
the state and below the national rates at 7.4% and 8.7%, respectively.
SOUND FINANCIAL OPERATIONS SUPPORTED BY HEALTHY RESERVES
The city's financial operations will remain sound given historically
strong management, conservative budgeting, and healthy reserve levels. The city
closed fiscals 2007 and 2008 with small General Fund deficits of $92,000 and
$216,000 respectively, primarily driven by one time expenditures including
health insurance and retirement claims, which brought the General Fund balance
to $2.1 million, or an ample 42.9% of revenues at the close of fiscal 2008. In
fiscal 2009, the city experienced an operating surplus of $176,000 mainly
attributable to decreases in payroll expenses. The General Fund balance for
fiscal 2009 increased from the prior year to $2.25 million, or a healthy
46.8% of revenues which is well above the city's formal fund balance policy to
maintain 25% of General Fund expenditures. After initially projecting a slight
surplus for fiscal 2010, the city ended with an operating surplus of
approximately $363,000 closing the fiscal year with a General Fund balance of
$2.6 million or a sizeable 51.9% of General Fund revenues. Management is
projecting balanced operations for 2011.
Property taxes are the city's largest core revenue source (45.5%), followed by
intergovernmental aid (22.3%). The city's reliance on property taxes somewhat
reduces the city's vulnerability to state aid cuts. The state biennium budget
for fiscal years 2012 and 2013 has not yet been set and will likely contain
provisions that would affect the city's fiscal 2012 budget. Officials note
for fiscal 2012, the city will reduce expenditures by cost savings across all
departments including changes to pool operation hours and reducing training
classes offered to offset the estimated reduction in state aid (approximately
$110,000 including state shared revenue and transportation aid).
HIGH DEBT BURDEN WITH AVERAGE PRINICPAL AMORTIZATION
The city has a high overall debt burden (5.6%), with a significant portion of
direct debt, also high at (3.2%), largely related to two TIF districts. Revenues
from both TIFs are sufficient for related debt service, mitigating the burden to
the debt service levy, which we believe will continue to keep the city's debt
burden manageable. While additional revenue debt is expected to be issued
related to upgrade to the city's water treatment plant, those bonds will be
financed entirely from net revenues of the enterprise system. Moody's believes
that despite potential future borrowing plans and an average amortization rate
(68.6% of the city's debt is retired in ten years), debt levels should remain
manageable. All of the city's debt is in fixed rate mode, and the city is not a
party to any interest rate swap agreements.
2010 Estimated population: 10,084
2010 Full value: $684 million
Full value per capita: $67,809
1999 Median family income as % of state: 89.7 %
1999 Per capita income as % of state: 94.0%
Debt burden: 5.6% (3.2% direct)
Principal payout (10 years): 68.6%
Walworth county unemployment April 2010: 7.8%
FY2010 General Fund balance: $2.6 million (51.9% of General Fund revenues)
Post-sale GOULT debt outstanding: $22.1 million
The principal methodology used in this rating was General Obligation
Bonds Issued by U.S. Local Governments published in October 2009.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, public information, confidential and proprietary
Moody's Investors Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
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Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
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MOODY'S ASSIGNS Aa3 RATING TO THE CITY OF ELKHORN'S (WI) $3.7 MILLION GO PROMISSORY NOTES, SERIES 2011
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