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
“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
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.