Lasee's Notes
 August 17, 2017

Lasee's Notes is a way for me to communicate directly with you on key issues of our day
and to champion limited government, lower taxes, and individual liberty.
How we respond to these issues today, will affect the direction of our state and nation tomorrow.

I look forward to hearing from you about the issues of concern to you. Please feel free to contact me, Sen.Lasee@legis.wisconsin.gov or (608) 266-3512. If you are planning to be in Madison, please visit, I look forward to seeing you at the Capitol.

Rating, Bond Rating


You borrow money from someone, you pay it back. It’s something everybody learns at some point in life.  Wisconsin State Government is no different. When the state wants to borrow money to invest in anything, from improving I-41 to building a new dorm at UW-Green Bay, that money has to be paid back. 
 

To borrow money the state issues bonds. Bonds are fixed income securities with permanently set interest rates and principal payments. The state uses three different kinds of bonding: appropriation obligations bonds, revenue bonds, and general obligation bonds. 
 

Appropriation obligation bonds are loans where repayment is subject to annual appropriations of funding by the legislature. Revenue bonds are loans that come from a guarantee that the state will pay back the money from a certain revenue stream.
 

 


General obligation bonds are backed by the full faith and credit of the issuers for repayment. This repayment pledge is an unconditional promise to collect taxes or take whatever other steps are necessary to assure repayment. General obligation bonds are considered safe investments and carry a lower interest rates than revenue and appropriation bonds.


The repayment of Wisconsin general obligation bonds is so important that a repayment pledge is in the
Wisconsin State Constitution Article VIII, Section 7(2)(f) of the State Constitution states:


“The full faith, credit and taxing power of the state are pledged to the payment of all public debt created on behalf of the state pursuant to this section and the legislature shall provide by appropriation for the payment of the interest upon and instalments of principal of all such public debt as the same falls dues, but, in any event suit may be brought against the state to compel such payment.”


Earlier this month the State of Wisconsin’s General Obligation rating, also known as bond rating, was
upgraded to Aa1 by Moody’s Investors Services. Wisconsin’s new rating of Aa1 is the second-highest rating offered by Moody’s and our highest rating since 1973.
 


Wisconsin’s bond rating is Aa1 in comparison, Illinois’s is Baa3
 

Moody’s Investors Services is one of the Big Three credit rating agencies for businesses and governments. Moody’s tracks debt for 130 counties, 11,000 corporations, and 21,000 public finance issuers. When announcing Wisconsin’s new bond rating Moody’s cited the facts that Wisconsin’s pension system is fully funded, we are conservative with taxpayers’ money, and the state has a Rainy Day Fund.

Wisconsin’s commitment since 2011, when Governor Walker took office and Republicans became the majority in the legislature, to getting Wisconsin’s financial house in order is paying dividends. A higher bond rating means the state will pay even lower interest rates and costs on money it borrows in the future and a reduction in the interest rates on outstanding bonds. Lower interest rates will save thousands and in some cases millions of taxpayer dollars depending on market conditions at the time of borrowing.
 

Moody’s Investors Services decision to increase Wisconsin’s bond rating will have immediate effects for the legislature and taxpayers.  The Foxconn August 2017 Special Session bill has $252.4 million in general obligation bonding for the I-94 North-South corridor project.
 

One of the philosophical disagreements in debating the 2017-2019 biennial state budget is should transportation projects be funded by increasing fees and taxes or by bonding. With Wisconsin now paying even lower interest rates due to our new bond rating, those who want to raise taxes and fees on the backs of Wisconsinites have an even weaker argument.
  

When a major road project is built, it is used for decades. So it can make sense to bond (borrow) for transportation projects that can be paid for over the lifetime of use of the roads and bridges. It also is important to make sure that we don’t use too much debt for purchases. Another reason for bonding is that with low interest rates and higher inflation on road building means that waiting to pay for major projects, until we have the cash, means that we will be paying more because of higher prices to build in the future.



 
 

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Lasee's Notes, please feel free to contact me.

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State Capitol Room 316S- PO Box 7882, Madison, WI 53708
(608) 266-3512
Email: Sen.Lasee@legis.wisconsin.gov