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MOODY'S ASSIGNS Aaa RATING TO NORTHEAST WISCONSIN TECHNICAL COLLEGE DISTRICT'S (WI) $5.8 MILLION GO PROMISSORY NOTES, SERIES 2011A

09 May 2011

Aaa RATING APPLIES TO $49.6 MILLION OF OUTSTANDING GO DEBT, INCLUDING CURRENT OFFERING

Primary & Secondary Education
WI

Moody's Rating

ISSUE

RATING

General Obligation Promissory Notes, Series 2011A

Aaa

  Sale Amount

$5,800,000

  Expected Sale Date

06/01/11

  Rating Description

General Obligation Unlimited Tax

 

Opinion

NEW YORK, May 9, 2011 -- Moody's Investors Service has assigned a Aaa rating to Northeast Wisconsin Technical College District's (WI) $5.8 million General Obligation Promissory Notes, Series 2011A. Concurrently, Moody's has affirmed the Aaa rating on the district's outstanding general obligation debt, affecting $49.6 million post-sale.

SUMMARY RATINGS RATIONALE

Proceeds of the Series 2011A notes will finance various capital projects, including building remodeling and improvement projects, the purchase of movable equipment, additions to the Green Bay campus and the purchase and remodeling of a building in Marinette. The current bonds are secured by the district's general obligation unlimited tax pledge, and debt service is to be paid with property tax revenues. Assignment of the highest quality rating reflects the district's sizeable tax base anchored by the City of Green Bay (GO rated Aa1), consistently well-managed and healthy financial operations benefiting from growing enrollment over the long run, strong reserve levels, a notable amount of margin under its levy cap, and manageable debt levels.

STRENGTHS

-Strong financial reserve levels

CHALLENGES

-Unemployment levels in the city of Green Bay track above state and national levels

-Potential significant impact of state wide budget cuts

DETAILED CREDIT DISCUSSION

SIZEABLE TAX BASE REMAINS STABLE DESPITE CHALLENGES

We expect the district's tax base will remain stable due to its diverse nature and its sizable area in Northeast Wisconsin. With its main campus located in Green Bay, the Northeast Wisconsin Technical College District serves nine surrounding counties, including Brown (GO rated Aaa, 48.8% of full value), Door (GO rated Aa2, 19.6% of full value), Marinette (GO rated Aa2, 10.1% of full value) and Oconto (9.8% of full value). Green Bay acts as the economic hub for northeastern Wisconsin. The Green Bay metropolitan area has a higher proportion of its workforce employed in the manufacturing sector relative to national averages (about one in five locally vs. one in ten nationally) with the pulp/paper and packaging industries representing a sizeable footprint. Such employers have seen sector wide payroll reductions across northeast Wisconsin over the past several years. Georgia Pacific (senior unsecured rated Ba2/ stable) and Procter & Gamble (senior unsecured rated Aa3/ stable) - both in the paper industry- have large local operations employing almost 4,000 combined. Management reports that local operations in both organizations are stable. Favorably, Brown County's March 2011 unemployment rate of 7.2% was lower than state and national rates of 8.1% and 9.2% respectively, however the unemployment level for the City of Green Bay remains elevated at 10.7% for the same period. Significant health care, higher education, government, and insurance industries diversify employment in the region.

With a large amount of coast line, both Door and Marinette County's geographic location makes them an important maritime center for Great Lakes shipping and ship building. Sturgeon Bay (GO rated Aa3, and the county seat for Door County) and the City of Marinette (GO rated A1, and the county seat for Marinette County) have sizeable employment tied to shipping. Marinette Marine (which has contracts with the Coast Guard and Navy) is the construction site for a military warship project. The economies of both counties are also dependent upon agriculture and tourism. Management cites that Door County's tourism activity has remained resilient despite the downturn in the state and national economy.

SOLID RESERVE LEVELS EXPECTED TO CONTINUE DESPITE PLANNED DRAWDOWNS

We believe that the district's financial position will remain stable given solid fiscal management, continued enrollment growth over the long run, and General Fund reserve levels which have consistently met the formal policy of retaining at least 20% of the subsequent year's expenditures. Over the past several years, the district has met or exceeded its formal policy despite operating under state imposed operating mill cap of $1.50 per $1,000 of equalized value. In fiscal 2009, property tax receipts were the district's primary operating revenue stream, representing 55% of total General Fund revenues. That year the district posted an operating surplus of $457,000, bringing reserves to $16.9 million, or a healthy 24.6% of revenues. The district had established a mill rate of $1.05 leaving approximately $16.6 million of unused taxing margin, or about 24.2% of 2009's General Fund revenues. This statutory cap does not affect the mill rate established for the repayment of general obligation debt. Tuition, which accounted for just over 22.7% of 2009's General Fund revenues, has enjoyed favorable performance given the combination of recent rate increases (a 4.5% increase was granted for 2010, which followed a 5.4% increase for 2009) and very strong enrollment trends. Enrollment growth has averaged 5.3% annually over the past five years, which includes a significant 12% increase, year-over-year, in fiscal 2010. Management budgeted for a $655,000 draw on General Fund reserves in fiscal 2010 in order to manage its overall levy (1.1 mills for operations, 1.54 mills total). Positively, based on audited financial data, the district had an operating surplus of $497,000, which included a $477,000 transfer to the debt service fund. The expected positive variance is attributed to the 4.5% tuition increase and the significant enrollment growth for the year. The district reported a fiscal 2010 year-end General Fund balance of $17.4 million (or 23.1% of General Fund reserves).

Management is budgeting for an operating deficit of $950,000 in fiscal 2011. An estimated $550,000 of reserves will be drawn down to mitigate any necessary increases in the operating levy to maintain balanced financial operations. The anticipated operating deficit incorporates management's adjustment of the levy based on an assumed 0.5% decline in taxable property, as experienced in the 2009 valuation. Similar to prior years, the district's operational mill rate was set well below the operating mill cap of $1.50 per $1,000 of equalized value. The 2011 operating mill rate of $1.17 ($1.59 total) yields approximately $12.3 million of unused taxing margin. An additional $400,000 is expected to be drawn down to finance Other Post-Employment Benefits (OPEB). This budgeted draw will be expended from the $1.6 million that is reserved in the General Fund specifically for the purpose of addressing OPEB expenditures. The reservation approximates 27.5% of the district's total OPEB liability of $5.8 million. Notably, management budgeted for no increases in state aid revenues and incorporated 2% growth in full-time equivalent enrollment, a conservative figure based on enrollment growth trends seen in recent years. Officials expect the General Fund balance at the end of fiscal 2011 will be $16.9 million (or 18.4% of 2010 level General Fund revenues). Despite the use of reserves, we believe the district's balance sheet should remain healthy given management's commitment to maintaining reserves within targeted policies and the district's continued trend of maintaining significant room under its operating levy cap. In fiscal 2012, the district is budgeting for a $3.3 million reduction in state aid, which will be offset by employee required contributions to WRS of 5.8% and the 5.5% tuition increase approved by the state in March 2011.

MODEST DIRECT DEBT LEVELS EXPECTED TO CONTINUE

We believe the district's modest 2.4% overall debt burden (0.1% direct) will remain manageable as the result of limited future borrowing plans. As a matter of policy, most debt obligations are structured to be retired within ten years or less. Annual issuance is targeted around $9 million, increasing roughly 5% per year to keep pace with its equipment purchase and building maintenance and remodeling requirements. We expect the district's overall debt profile will remain very favorable given low existing direct debt levels and aggressive principal amortization (96.9% of debt retired in five years; all debt in ten). All of the district's outstanding debt is fixed rate and the district is not party to any interest rate swap agreements.

WHAT COULD CHANGE THE RATING - DOWN

-Marked decline in enrollment levels

-Substantial declines in the district's fund balances and/or liquidity

KEY STATISTICS

2008 Population (estimate): 417,077

2010 Full market valuation: $37.3 billion (2.6% average annual increase since 2005)

2010 Full value per capita: $89,631

2000 Per Capita Income as a % of State (Brown County): 102.4%

2000 Median Family Income as a % of State (Brown County): 106.2%

Fiscal 2009 General Fund Balance: $16.9 million (24.6% of revenues)

Direct Debt: 0.1%

Overlapping Debt: 2.4%

Payout (10 Years): 100%

Post-Sale GOULT Debt: $49.6 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, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics 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

Megan Roudebush
Analyst
Public Finance Group
Moody's Investors Service

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

Henrietta Chang
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

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


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MOODY'S ASSIGNS Aaa RATING TO NORTHEAST WISCONSIN TECHNICAL COLLEGE DISTRICT'S (WI) $5.8 MILLION GO PROMISSORY NOTES, SERIES 2011A
No Related Data.
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