Wisconsin Bonds (Wisconsin Municipal Bonds)

In September 2009, Menasha, Wisconsin became the first US city to default on bonds, since Vallejo, California filed for bankruptcy in May 2008. The city of Menasha was sued by investors who accused Menasha of misrepresenting facts while seeking financing to convert a part of a municipal power plant into a coal-fired, steam-generating facility to serve four nearby paper mills. After costing more than three times the initial estimate, the power plant project was unable to generate the expected revenues and encountered potentially costly environmental issues.[br]

 

Defaults like that done by the holders of Menasha, Wisconsin bonds were rare. From 1970 to 2006, there have been only seven defaults across the US by the local and state governments that had been rated by Moody’s Investors Service, one of the country’s leading credit-rating firms.

 

Wisconsin Bonds: Other Slips

During the routine surveillance, Fitch Ratings downgraded the rating for one of Wisconsin bonds in September 2009. The approximately $15.7 million pension funding bonds, series 2003C, issued by Redevelopment Authority of the City of Milwaukee, were downgraded from ‘AA’ to ‘AA-.’ Fitch also revised the rating outlook to Negative from Stable.

 

These bonds were issued to fund pension liability of the Milwaukee Public Schools (MPS) to the Wisconsin
 Retirement System and were secured by the operating fund of the schools and a standby State aid intercept,
should there be any deficiency during debt service payments. Additionally, Fitch Ratings withdrew its rating on
series 2003B pension funding bonds. The downgrade and negative outlook reflected the deterioration in the local
economy since Fitch’s last review of the bonds.

 

Wisconsin Bonds: New Beginning[br]

The State of Wisconsin made a bond offering to individual investors in March 2009. This offering gave individuals an opportunity to add Wisconsin bonds to their portfolio at an attractive yield. For example, the new federal tax-exempt 10-year bond carried a 4.75% yield. The bond offering, which had a minimum purchase price of $5,000, was aimed at raising a good capital and the bonds were tied to the 1998 settlement by tobacco companies and States.

 

According to the Legislative Fiscal Bureau, the government fully assumed the risk associated with a potential decline in revenues from tobacco. However, as these bonds were not tax-backed general obligation bonds, they are not backed by the full faith and credit of the State.