City of Detroit maintains positive marks among bond rating agencies
Detroit — The post-bankrupt city is maintaining positive marks among rating agencies despite coronavirus-induced financial strain.
Moody's Investor Services and Standard & Poor's this week issued favorable reviews for Detroit on bonds and outstanding debts.
Standard & Poor's on Wednesday boosted Detroit's outlook to "stable" from negative on unlimited-tax general obligation debt and affirmed its BB- rating on the city's outstanding debt.
S&P also revised Detroit's position to stable from negative on a BB+ rating on Michigan Finance Authority's Local Government Loan Program bonds, and gave the city a BB- long-term rating on $175 million in unlimited-tax general obligation bonds.
"The return to a stable outlook reflects the city's strong fiscal management during the COVID-19 pandemic and Mayor (Mike) Duggan's vision to strengthen every neighborhood through the rehab and demolition of vacant houses," Detroit's Acting Chief Financial Officer Jay Rising said in a statement.
John Sauter, a credit analyst for S&P Global Ratings, said the designation "Reflects our view that Detroit's reserves are likely to remain very strong and well above previous projections, despite the unprecedented revenue losses that are now forecasted at nearly $430 million.
"The city achieved this with persistent cost-cutting and maximizing of federal funds, both of which we expect to continue," Sauter said.
Detroit officials last fall projected the city would endure at least $410 million in losses due to the pandemic. The deficit projections served as an update to an initial estimate provided by Duggan in the spring, when he laid out aggressive cuts to stave off a lesser virus-induced shortfall of $348 million from March 2020 to June 2021.
Detroit, through its bankruptcy, was relieved of much of its pension payments through 2023. In 2024, the city will have to start funding a substantial portion of those obligations from its general fund for the General Retirement System and Police and Fire Retirement System.
In recent years, the city stood up a dedicated fund to amass $377 million toward the payments.
Detroit has recovered all but 11,000 of the 69,000 jobs it lost last April, but, as of November, its entertainment and hospitality industry remained strained with an 18.7% unemployment rate, S&P noted.
The Biden administration in recent days has proposed a new federal stimulus package and Michigan announced its revenue forecasts are exceeding estimates.
"These factors, combined with a potentially more federally coordinated approach to pandemic relief and vaccine roll-out, offer increasing potential for revenue rebound," the report adds.
The report indicated the $250 million for blight approved by city voters in November shows a strengthened tax base for the city long-term.
Meanwhile, Moody's in a Tuesday report, maintained its Ba3 rating on the city's bonds, stressing Detroit's outlook "Remains positive."
The rating, Moody's wrote, "Balances the city's robust reserves and strong financial planning practices with its weak property tax base, significant debt and pension leverage, and substantial resource demands, including the need for further capital investments."