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Dane County loses its bond rating

Paul Snyder
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Two national investment firms downgraded Dane County’s bond rating, giving supervisors one more reason to curb borrowing for construction projects.

Moody’s Investors Service and Fitch Ratings, both based in New York, dropped Dane County from AAA to AA status primarily because the county’s reserve budget deteriorated between 2008 and 2009, according to a Fitch statement.

It’s bad news for a county budget already short on cash, said Dane County Supervisor Tom Stoebig.

“You lose AAA, and it increases the debt service,” he said. “We’ve had very favorable interest rates, but we’re in a quandary, and we’ll have to see what the outcome in the budget will be.”

The county’s 2009 budget had a projected reserve of $3.2 million, but lower-than-expected revenue from sales taxes and planning and development permits pushed the county’s general and reserve budgets into deficits. County estimates now project both to be in the red by Jan. 1.

Topf Wells, chief of staff for Dane County Executive Kathleen Falk, said the lowered bond rating is frustrating given the county’s attempts to save money this year. Yet it should not make it more difficult should the county need to borrow for projects.

“We’re not worried,” Wells said. “An AA rating is still very strong, and we’re only talking about one-tenth of a 1 percent increase on interest.”

What that means, for instance, is that the county would pay $20,000 more in interest for a $20 million bond.

In the past four budgets, Dane County averaged $29 million in borrowing per year.

Falk is still working on the county’s 2010 budget, but Wells said it will be a year of sacrifice, and the county executive likely will not allow excessive borrowing.

“You don’t want to ever pay more than you have to,” he said. “But it’s not significant in light of what we’re going to do.”

But the county might be stuck with the AA rating for more than a year. To reclaim AAA, the county will have to replenish its reserve budget, and Wells said he would be surprised if that could be done in a year.

Cindy Stoller, a spokeswoman for Fitch, said bond ratings usually hold for more than a year. According to the company’s analysis of the county, it could take Dane County several years to rebuild its reserve budget.

Until then, a few thousand dollars extra in interest on one project might not seem like much, Stoebig said, but it adds up quickly. Furthermore, he said, it’s difficult to justify borrowing money when the county has nothing in reserve.

According to county documents, the 2009 budget called for $41.9 million in borrowing, but much of that was frozen by county supervisors. Stoebig said those freezes likely will continue in 2010, and there likely will be moratoriums on borrowing or new county projects.

“I wouldn’t support a carte blanche moratorium because I think we have to look at each project individually,” he said. “But I think they’re coming.”

Falk told county supervisors last week that 2010 budget projections are so dire that to meet the requests of each county department and maintain services, she would have to propose a tax levy increase of more than $26 million. She said she will neither propose nor support that kind of increase.

But Dane County cannot afford to pay extra for its projects for too long, Stoebig said, and if a major tax increase is the way out of the budget hole, he will support it.

“It’s not the politically popular idea,” he said. “We just can no longer do the inflation plus growth increases.

It’s left us no cushion to rely on in bad economic times.”

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