MOUNT PLEASANT — Borrowing money for the Village of Mount Pleasant is about to cost more in interest after Moody’s, one of the nation’s pre-eminent credit rating services, downgraded the rating for the village from Aa2 to Aa3 in late August.
One of the downsides to the massive amounts of borrowing being done by Mount Pleasant and Racine County for the Foxconn Technology Group project is the downgrading of both governments’ credit ratings.
The governments have been borrowing millions of dollars to help pay, in part, for land acquisitions and infrastructure upgrades related to the Foxconn/Wisconn Valley project. However, each government has also been borrowing money for other capital projects not related to Foxconn and the interest rate for future borrowing is likely to increase.
On Aug. 30, Moody’s said in a report that the downgrade “largely reflects current and anticipated growth in the village’s direct debt burden and likely growth in its overlapping debt burden tied to borrowing in support of the Foxconn development.”
The report goes on to say that the rationale for the rating “also incorporates additional risks associated with the project including the uncertainty of enforceability of guarantee provisions in the event of a breach of development obligations. However, these challenges are somewhat offset by the village’s growing tax base with above average socioeconomic characteristics, healthy financial position relative to operations and moderate pension burden.”
The village is currently $35.5 million in debt.
In a statement to The Journal Times, Village President Dave DeGroot said, “The Village of Mount Pleasant is proud of its strong credit rating, which is the result of our long track-record of effective budget management. Assignment of a Aa3 long-term rating to the village’s general obligation (GO) debt — while we are concurrently making significant investments in providing the infrastructure needed to support the Foxconn project and other related development — reflects the continued confidence in the village’s creditworthiness. The village has seen strong interest in its past bond offerings, which we expect to continue.”
Village Administrator Maureen Murphy said the village is confident that when it meets with Moody’s again in about six months that the ongoing development of the Foxconn project will convince the rating agency to upgrade the village back to an Aa2 rating.
Effect on Racine County
For parts of the Foxconn project that require borrowing in the tens of millions of dollars, Mount Pleasant has relied on Racine County to help shoulder that financial burden.
In late November 2017, when the county borrowed nearly $80 million to help pay for land acquisitions, Moody’s downgraded the county from Aa1 to Aa2, but gave the county a “stable” ratings outlook.
At the time, Moody’s said the “stable outlook reflects our expectation that although the county’s direct and overall debt burden will rise, we expect expansion of the county’s tax base and solid growth in the revenue base will keep the county’s debt burden manageable and in line with the current rating.”
But things have changed over the last 10 months.
The county remains at Aa2 rating but Moody’s has changed the outlook to “negative,” as the county currently has $147.2 million in bond anticipation notes (BAN).
Moody’s said in August the negative outlook, “reflects our view that the county has taken on substantial short-term leverage that could pressure the GO (general obligation) rating should the county experience difficulty in security take-out financing for the BANs. The rating could also be lowered if revenue generated directly or indirectly by the Foxconn development falls short of county expectations.”
Racine County Jonathan Delagrave said an Aa2 rating is a strong rating, “which is the result of our long track-record of effective budget management and fiscal conservatism.
“Our ability to maintain a strong AA2 long-term rating reflects the continued confidence in the county’s creditworthiness,” Delagrave said in a statement. “In addition, the county has seen strong interest in its most recent debt offering, which supports Moody’s high rating in this month’s report.”
“The Village of Mount Pleasant is proud of its strong credit rating, which is the result of our long track-record of effective budget management … The village has seen strong interest in its past bond offerings, which we expect to continue.” Dave DeGroot, Mount Pleasant village president