Madison received the highest municipal bond rating from Moody’s Investors Service but with a negative outlook.
The Aaa rating — the highest possible rate an issuer can receive — comes as the city is prepared to issue $110.2 million in tax-exempt general obligation bonds and notes at its meeting Sept. 17.
“It affirms the city’s sound financial and budget management, conservative debt repayment structure, stable economy relative to the state and nation, and adequate general fund reserves,” Finance Director Dave Schmiedicke said Friday in an email to the mayor and City Council.
It also confirms “market confidence” in the city’s economic condition, Schmiedicke said.
However, the negative outlook stems from three conditions that could move the rating down in the future. These include increases in debt levels, weakening of the city’s tax base and material declines in operating reserves and liquidity, including the financial conditions of the Madison Water Utility.
“General operations of the city remain exposed to its water enterprise,” the report from Moody’s said.
Last April, an audit revealed the Water Utility faced a $6 million deficit. The Public Service Commission granted the utility a 30.6% rate increase in November 2018 while reprimanding its fiscal practices.
The rate increase was meant to let the utility borrow for 2018 to cover capital expenses for 2017, 2018 and 2019 and repay the city a $6 million loan.
According to the report, the rate increase should strengthen water operations but “any challenges to water operations requiring general fund support could potentially place downward pressure on the city's credit profile."
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