On May 1, the City of Sheboygan received good news of its superior bond rating from Moody’s Investor Service. The bond rating of Aa2 is a reaffirmation of its previous year rating. On Moody’s Investor Service’s rating scale, only two rating levels exceed Sheboygan’s Aa2 rating. The bond rating is critical to the City as it markets the sale of $5 million in municipal debt. The city received 10 bids from investors for the $5 million Obligation Promissory Notes. The winning bid by UMB Bank, Kansas City, MO resulted in a net interest rate of 2.067 percent.
Moody’s Investor Service cited the strong financial position of the City with solid reserves and the below average debt burden with quick repayment schedule. Municipalities are allowed to pay back the principal and interest over 20 years. Almost all of the City’s debt will be paid off in 10 years. The Aa2 rating is reflective of Sheboygan’s moderately-sized tax base with a below-average resident wealth and income balanced against a strong financial position and moderate debt and pension burdens.
The credit report identifies expansion and diversification of the city’s tax base could lead to a future rating upgrade. Five residential projects that are under construction or proposed to begin soon will expand the tax base to position Sheboygan for a future rating upgrade. The residential projects are the Encore Apartments, the Portscape Apartments, the Washington School historic renovation, the High Pointe Apartments, and the Founder’s Club.
Non-residential projects that are planned or under construction include: Kiernan West, SBM, LLC is approved to build a 27,839-square-foot cross dock distribution center in the Sheboygan Business Center with an estimated value of $10.5 million. Acuity has finished the $75 million expansion of their Sheboygan location. Sheboygan Paper Box is constructing a new 30,000-square-foot plant addition – the estimated project cost is $8.3 million, and SACO Polymers/NWP Inc. will move into a 21,000-square-foot two-story corporate office at worldwide headquarters in May.
This year’s $5 million debt issuance is an increase of $2 million in the annual borrowing amount to fund the 2017 Capital Improvements program (CIP). The City of Sheboygan for the last 19 years had capped the annual Capital Improvements borrowing at $3 million. Each year the CIP is prioritized by the Capital Improvements Commission which is made up of the Mayor, three Alderpersons and three city residents. The $5 million debt issuance will fund the following purposes: City Buildings improvements $615,000 (City Hall, Fire Stations, and Mead Library), replacement Fire Engine $495,000, Street Resurfacing $2,015,779, replacement Transit Buses $180,000, replacement Motor Vehicles $949,000, and S. 8th Street Bridge Improvements $743,729.
Another factor that sustained the City’s Aa2 bond rating was the City’s conservative management of its fund balances. The City recorded a sixth year of consecutive surplus across major operating funds in fiscal 2015, increasing the available fund balance to $32.1 million and 71 percent of operating revenues. The positive results have largely been driven by management’s control over expenditure growth and position the City to maintain very healthy reserves going forward. The City’s operating fund balance at the close of 2015 totaled $29 million or a still strong 64 percent of operating revenues.
The unaudited estimate for 2016 reflects the planned use of $2.5 million in fund balance to pay Sheboygan County for the city portion of the combined dispatch center. Moody’s credit report identifies that, given the strength of current reserves, the City Council could choose to allocate some accumulated funds for certain one-time purposes without substantially weakening the City’s fiscal outlook.