Merrill loses 'A' credit rating; report calls city’s economy ‘very weak’

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MERRILL, Wis. (WSAW) -- Merrill’s credit rating has dropped from A to A-, according to a report from S&P Global Ratings that cited a weak economy and budgetary performance, and a likelihood that the credit rating may drop further in the future.

Photo of Merrill City Hall, undated (WSAW Photo)

The report was included in a Merrill special counsel meeting last Wednesday, which passed two resolutions to take on a total of about $3.5 million in debt for city improvements and to reimburse the general fund for previous expenses and capital projects.

The S&P report states that the lower rating “reflects our opinion that the city’s tax-increment district (TID) funds have continued to pressure general fund performance,” and called Merrill’s overall budgetary performance weak.

The report also cites a negative outlook for the city, which under S&P definitions means the credit rating may be lowered again. The report cites some growth under two of Merrill’s twelve TIF districts and development in other TIF districts, but goes on to say that “despite this growth, we anticipate the city’s economic conditions will likely remain very weak over the medium term.”

Dave Johnson, Merrill’s city administrator, says he doesn’t agree with S&P’s assessment.

“All you need to do is look around the city to see the development we’ve been having compared to what we had in previous decades,” Johnson told NewsChannel 7. “I don’t think we have a weak economy at all.”

The report also reviewed the city’s management, calling the policies and practices adequate but also citing an absence of a debt management policy. City management does not have a credible plan to reduce the amount of TID funds due to the general fund, according to the report. “This trend has gone on for at least three years and still has not been adequately addressed by management, raising questions about management’s willingness and ability to address this problem,” the report states.

Johnson disputed that assessment of city management, saying the city was addressing the problem by seeking development.

“I believe that the city is doing what we’re supposed to be doing with TIF. We are getting development. And while I would like to see us retain that rating, I believe that we are still performing as we should, and we need to continue in the manner in which we have been going.”

Johnson cited the 2018 city audit, saying the audit firm told the city “we were doing exactly what we are supposed to do with TIF: we’re investing in the community.” Those TIF-supported projects include the relocation of Golden Harvest to a larger facility within the city which will reportedly create about 50 new jobs, as well as the relocation and expansion of Nelson’s Power House.

Mayor Derek Woellner also referenced the 2018 audit when speaking to NewsChannel 7 about the report. “I guess I was a little surprised, because our audit from this past year wasn’t as pointed as this report was,” Woellner said. “This report was definitely a little more concerning than any of our previous audits.”

Woellner released an email on Facebook on Tuesday with a series of questions for the city administrator and finance director asking for more information about how the city can rectify the issues raised in the report. “My biggest takeaway from it is that we don’t have a plan in place for our TID districts to repay our general budget,” Woellner told NewsChannel 7. “I think one of the main things we have to do is get a plan in place for that repayment.”

Merrill owes about $24.4 million once revenue-supported debt is excluded, according to S&P, which is cited as an “adequate” debt profile. The report says a positive credit factor for the city is that a little more than 77% of the current debt is scheduled to be repaid in the next 10 years.

For alderman Steve Osness, who sits on the city’s finance committee, the dropped credit rating and continued borrowing illustrates what he sees as the core problem.

“Our debt is out of control,” Osness told NewsChannel 7. “We can’t keep going down this road…we had to borrow money to pay our employees of the city.” City finance director Kathy Unertl says the debt approved under the resolutions passed at last week’s meeting was incurred to reimburse the general fund to cover debt service and payroll, as the money that would otherwise have paid those items had been used earlier in the year to pay other bills on capital projects.

“It’s a timing issue,” Unertl told NewsChannel 7 regarding additional debt being added during the fall as next year's budget is prepared. “This is standard; this is what we’ve been doing on an annual basis for the last four years.”

Osness and alderperson Steve Hass voted against the budget in 2018, which went on to raise city taxes by 7.4% due to a calculation error, rather than the 3% that had been promised to Merrill residents. That issue led to the recall election against five of the seven city aldermen earlier this year, after which four out of the five aldermen retained their seats.