June 17, 2014 at 10:31 pm

S&P lowers credit outlook for state, cites 'grand bargain'

Lansing— The state of Michigan’s use of its rainy-day fund to contribute $195 million toward a Detroit bankruptcy settlement fund has caused one Wall Street credit rating agency to lower its outlook on state debt.

Standard & Poor’s Ratings Services on Tuesday lowered its credit outlook for the state from “positive” to “stable,” in part because of the Legislature’s $195 million to the so-called “grand bargain” to aid city pensioners.

S&P also cited a “softening in projected fiscal 2014 revenues, expected slow economic growth” and a decline in general fund revenues as reasons for the revised credit outlook. The agency kept the state’s AA-minus bond rating on general obligation debt.

“The state (rainy-day fund) appropriation to the Detroit bankruptcy settlement also raises questions as to potential future state contributions to other distressed localities and school districts, and we will monitor the uniqueness of this event,” S&P analysts wrote.

Fitch Ratings also assigned the state’s debt a “stable” outlook Tuesday, but did not attribute its view of state debt to the Detroit pension rescue package.

Gov. Rick Snyder recently told The Detroit News that use of the state’s savings account to aid Detroit is a one-time event.

“I expect people to ask, but the answer is no,” Snyder said June 4.

A package of bills awaiting Snyder’s signature dip into the state’s $580 million rainy-day fund to contribute toward the proposed settlement fund to bolster city pensions and shield the Detroit Institute of Arts collection from a fire sale to satisfy creditors.

To replenish the fund, lawmakers have budgeted $94 million for the 2015 fiscal year and have earmarked $17.5 million annually for the next 20 years from the tobacco settlement fund.

After two decades, the annual $17.5 million repayment will total $350 million, the present value of the state’s $195 lump-sum contribution under a calculation built into the city’s bankruptcy reorganization plan.

When the Legislature sent Snyder the nine-bill package on June 3, the governor said he would sign them within a matter of days. But the bills did not get to his desk until June 10.

Snyder plans to sign the bills at an event Friday in Detroit, spokeswoman Sara Wurfel said.

(517) 371-3660