Milwaukee bond rating downgraded as city tax base continues to decline

Moody’s Investors Service slightly downgraded Milwaukee’s bond rating last week over concerns about the city’s poverty rate, property tax base and cuts to state aid.

The downgrade drops the city from Aa1, with a negative outlook, to Aa2, with a stable outlook, matching the AA rating given from Standard & Poor’s, which did not change.

“The main things that go into a rating for a city are the economic performance of the metro area, the tax base, the operating reserves of the local government and management of the unit’s budget,” said Joseph Daniels, director of Marquette’s Center for Global & Economic Studies, in an email.

Moody’s gave the city positive remarks on its fiscal management and the strength of its reserves but ultimately could not overlook the other facets.

“The tax base (for the city), at $28 billion, has experienced three consecutive years of decline,” said Abdur Chowdhury, chair of Marquette’s department of economics.

According to Chowdhury, the downgrade will end up hurting taxpayers and bondholders.

“The downgrade will cost the city in terms of the price of borrowing,” Chowdhury said. “It will ultimately cost the taxpayer. For bondholders, the value of their bond holdings will diminish.”

However, Dennis Yaccarino, one of the city’s budget and policy managers, does not believe the financial impact from the downgrade will be too negative moving forward.

“We don’t think the financial impact is going to be very dramatic,” Yaccarino said. “Moody’s had been looking at us for a long time. A lot of their issues had to be related to our economy.”

One of the issues of the city’s economy that Moody’s highlighted was the poverty rate, which is higher than the rest of the state.

According to a report released yesterday by the University of Wisconsin-Madison’s Institute for Research on Poverty, the poverty rate in the central-most part of Milwaukee as of 2010 hit 35.6 percent, while Milwaukee County’s poverty rate as a whole was 16.7 percent, the highest of any county in the state. Both these numbers exceed the state average of 10.3 percent.

“Milwaukee is continuing to be an area that has had high poverty,” said Tim Smeeding, director of the Institute for Research on Poverty. “That has been true for decades.”

Smeeding said many factors contribute to Milwaukee’s high poverty rate.

“Employment is low, there is a poor education system in the city, (and) a lot of people can’t find work,” Smeeding said.

Though Yaccarino acknowledges the poverty problem in the city, he said there are other factors that Moody’s may have overlooked.

“Something that did concern us is that we were not sure if Moody’s had the full information on the rating,” Yaccarino said. “There were a few big things that they may have overlooked. There is our $55 million pensions reserve. They should have thought that was a very good management issue. We made changes to our health care benefits. They neglected to include any of that (in their report).”

Moody’s report listed “continued tax base diversification and reversal of trend of tax base contraction” as well as “sustained growth and maintenance of reserves” as possible ways for Milwaukee to improve the rating.

Comments are closed