Moody's Public Finance Department Rating News; Milwaukee Metropolitan Sewerage District and "FLOW" Communities Ratings Confirmed.

NEW YORK--(BUSINESS WIRE)--Nov. 22, 1994--Effective Tuesday, Moody's completed its comprehensive review of the Milwaukee Metropolitan Sewerage District (MMSD), Wisconsin, and the eight "FLOW" communities who have legally challenged the district's practice of allocating capital costs according to an ad valorem method, rather than a usage-based one.

MMSD Aa Rating Confirmed

The Aa rating for the MMSD regional metropolitan wastewater treatment system was confirmed based upon the following credit characteristics:

Combination of User Charges and Property Taxes Provides Adequate Financial Support

Adequate support for financial operations is derived from user charges, as well as a property tax levy. Rate setting autonomy, the authority to levy unlimited property taxes, and access to low interest state revolving fund loans provide a margin of financial flexibility. This flexibility is key to the district's ability to compensate for the absence of certain capital charges which have been legally challenged by some municipal users. The 1995 budget calls for reduced employment levels and a 3% increase in user charges, meeting the district's goal of keeping rate increases below the rate of inflation.

The district continues to effectively manage its $2.2 billion Water Pollution Abatement Program (WPAP) so that final costs are estimated to exceed the original projection by only 8%. The property tax levy required to support this construction is expected to remain steady at $3 per thousand of equalized valuation on the $27 billion taxbase within the district. The "deep tunnel" portion of the project is now operational, and is reportedly exceeding expectations with respect to overflows.

Steady Growth in Taxable Valuation

Property values and population growth continue throughout the service area, which encompasses Milwaukee County and several of the surrounding communities. Socioeconomic indices are generally positive, although ranging from below average in the city of Milwaukee to well above average in the suburban areas. Payout remains rapid for above average levels of debt.

Ongoing Litigation With FLOW Communities Has Had Minimal Impact on Credit Quality

The district is continuing its efforts to collect capital charges relating to the WPAP from suburban municipal users. Several of the communities, called FLOW communities, have legally contested the district's method of allocating the charges on an ad valorem basis; most of them have refused to pay according to this basis, and instead pay according to a lower, usage basis.

The litigation has continued for over a decade and the sums involved are now substantial. While the lack of these revenues has affected the district somewhat, the overall impact has been minimal. Current revenues, including the property tax levy, provide adequate support for both operations and debt service.

The district has not yet decided what it would do with the money if the dispute is resolved in its favor. Abatement of the levy or prepayment of debt have been identified as options.

Seven FLOW Community Ratings Confirmed; One Remains Under Review Pending A Bond Sale

The ratings for the villages of Germantown, Elm Grove, Butler, Thiensville and the cities of Mequon, Muskego, and New Berlin have been confirmed. The rating for the village of Menomonee Falls remains under review pending a promissory note and bond anticipation note sale next month. The effect of the litigation on the credit quality of these issuers varies.

The city of Muskego has settled its legal dispute with the MMSD, and as such, has eliminated the uncertainties associated with the litigation and potentially large liabilities.

The villages of Germantown and Thiensville, while continuing litigation, have chosen to pay according to the ad valorem method, and are not considered to be in arrears. For these three municipalities, the litigation has had minimal effect on credit quality.

For those communities that have accrued large liabilities to the MMSD over the past decade of litigation, uncertainty regarding the need to arrange payment may detract from overall credit quality. For a complete discussion of the credit quality of the individual FLOW communities, please refer to Moody's Daily Rating Recap for Nov. 22, 1994.

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General Obligation Ratings Confirmed:

Milwaukee Metropolitan Sewerage District, Wisconsin:   Aa
Butler, Wisconsin:                                     A
Elm Grove, Wisconsin:                                  Aa
Germantown, Wisconsin:                                 A
Mequon, Wisconsin:                                     A1
Muskego, Wisconsin:                                    A
New Berlin, Wisconsin:                                 A1
Thiensville, Wisconsin:                                A

CONTACT: Moody's Public Finance Department

             Arlene Bohner, 212/553-4173
             Yaffa Rattner, 212/553-4429