Acting on a Committee of the Whole recommendation from earlier in the evening, city council alders on July 21 approved a resolution awarding the sale of approximately $6,835,000 worth of General Obligation (GO) Promissory Notes, Series 2020A.
City Finance Director Kristin Vander Kooi said the city will save $255,000 thanks to a favorable interest rate at the time of the sale, versus pre-sale estimates. The city sought the sale to help pay for street and other transportation improvements, park improvements, city facilities and building improvements, sanitary sewer improvements and extensions and the acquisition of vehicles and equipment.
The sale occurred with a true interest rate of .8825 percent, according to Todd Taves from Ehlers, the city’s financial advisor, who said Hilltop Securities in Dallas, Texas was the low bidder.
Other bidders and their true interest rates included Baird in Milwaukee (.9331 percent), KeyBanc Capital Markets Incorporated in Cleveland (1.0038 percent), Chicago-based Huntington Securities (1.0185 percent) and FHN Financial Capital Markets in Memphis (1.1268 percent).
The city received a favorable rate due to its bond rating of Aa2 and a downward trend in weekly municipal bond indices. An Ehlers report showed the floor has fallen out, from 3.43 percent on July 26, 2019 to 2.16 percent on June 5, 2020 and continuing to hover around that mark at 2.19 percent.
The city’s Aa2 bond rating from Moody’s Investors Service notes the city’s credit attributes that include “a large tax base, located within commuting distance of Madison WI, (Aaa stable), sound financial operations with healthy reserves and a modest pension burden. These credit attributes are balanced against an above average debt burden and limited revenue raising ability,” Moody’s wrote in its rating report.
While the coronavirus outbreak is a social risk, Moody’s wrote, “We do not see any material immediate credit risks for the city. However, the situation surrounding Coronavirus is rapidly evolving and the longer term impact will depend on both the severity and duration of the crisis. If our view of the credit quality of the city changes, we will update our opinion at that time.”
The investors service listed a modest pension burden, the city’s large tax base and “solid financial operations supported by healthy reserves” as credit strengths, while listing “some exposure to underperforming tax increment districts” and “limited revenue raising flexibility due to state-imposed levy limits” as credit challenges.
“Officials report some continued development underway within the city. However, we expect the city’s sizable commercial component could experience some volatility in assessments as a result of the economic downturn. Commercial properties comprise 28% of valuations,” the Moody’s analysis indicates. “Residential properties, which we expect will be more stable, comprises 69%. Going into the current economic slowdown, the tax base had six consecutive years of annual growth and reached $3.6 billion in 2019. The city’s median family income is 118% of the national figure.”
The report also states net cash across city operating funds totaled more than $18 million, or 48% of operating revenue, at the close of fiscal 2019.
“The city’s debt burden is above average and its pension burden is modest. Inclusive of the 2020A GOULT [general obligation unlimited tax] notes, the city’s net direct debt is equal to 2.1% of full value or 1.9x operating revenue. The city’s overlapping debt burden totals almost 8% of full value and is largely because of the significant borrowing of Sun Prairie Area School District (Aa3). Given the current economic environment, the city has scaled back its borrowing plans a bit and intends to keep annual issuance about $5.5 million. Fixed costs, inclusive of debt service, other post-employment benefits (OPEB) and annual pension contributions, were equal to about 20% of fiscal 2019 operating revenue,” Moody’s wrote in its report.
The rating service also said in its report the city’s participation in Wisconsin Retirement System is an asset, because “WRS remains one of the best-funded public employee retirement systems in the country, with statewide employer contributions to WRS in 2018 totaling more than 150% of the amount needed to tread water.
“The city’s three year adjusted net pension liability (ANPL) totals about $21 million, equal to 0.5x operating revenue and 0.6% of full value,” the report stated. “Moody’s ANPL reflects the use of a market-based discount rate to value pension liabilities rather than the assumed rate of investment return on plan assets. In comparison, the reported net pension liability, based on the plan’s 7.0% discount rate, was about $2 million in fiscal 2019.
“Sun Prairie’s other post-employment benefits (OPEB) liability reflects a single-employer defined benefit healthcare plan. The city’s net OPEB liability totals less than $50,000,” the investors rating service wrote.
During the Committee of the Whole meeting, alders voted to recommend city council approval later that evening. Alders unanimously approved the resolution authorizing the sale during the council meeting.