Moody's upgrades Wayne Co. to investment-grade
Moody's Investors Service this week upgraded Wayne County's bond credit rating from speculative to investment-grade for the first time in four years.
Reduction in unfunded pensions and plans to build a new jail helped Wayne County jump two notches from Ba1 to Baa2, according to Moody's report released Friday. The rating affects about $310 million in debt and conveys the county has adequate capacity to meet its financial commitments, opening its debt up to more buyers.
"It’s a validation and recognition of all the hard work the administration of county executive Warren Evans has conducted for three and a half years now," said Henry Dachowitz, the county's chief financial officer. "Our vision for the future is to reinvest in the county. We can't go back, but we can reinvigorate the county in performing government services."
The upgrade comes just as Wayne County's treasurer issued $147.7 million in delinquent tax anticipation notes this week to finance county payments to local governments for unpaid taxes. The increase in credit rating helped lower the variable interest rate the county pays on the notes, Dachowitz said.
The county also plans to issue $315 million in new bonds though the Michigan Finance Authority to finance a $553 million new criminal justice center on East Warren near Interstate 75. It is contributing $380 million toward the project, while Dan Gilbert’s Rock Ventures has committed $153 million, plus any cost overruns. In exchange, Wayne County gave the 15.5 acres of property on the edge of Greektown where its half-built jail stands to Rock Ventures.
These bonds, however, will not hold Moody's rating of Wayne County, Dachowitz noted. The county is borrowing funds for the jail through the state's distributable state aid fund. The bonds, therefore, should have Michigan's credit rating, which is Aa1, Moody's second highest rating.
The health of Wayne County's finances, however, do put it in a better position to take on the costs of the jail, according to Moody's.
"The county's regained structural balance positions it to absorb new costs that will service debt the county plans to issue to finance a new criminal justice center," Moody's wrote. "The county has exhibited the capacity to take on the new costs without an immediate and significant impact to accumulated reserves."
Wayne County has had three consecutive years of tax base growth, providing it the finances to invest in infrastructure, services, and personnel, according to the report. Additionally, unfunded post-employment benefits have fallen from $1.3 billion in 2014 to $257.5 million in 2017. Unemployment also has decreased, reaching a low of 5 percent in March after peaking at 16.2 percent in 2009.
A contributor to falling unemployment, however, is a shrinking labor force, which decreased 22 percent between 2001 and 2015. Moody’s cited that and slow labor market recovery as challenges for Wayne County. Its tax base also is still 30 percent below its pre-recession peak, and property tax caps in Michigan limit the county’s ability to raise revenue.
For continued credit upgrades, Moody’s says Wayne County needs maintained growth in its economy and tax revenue as well as further operational fund balance and improved pension plan funding. Major increases in fixed costs, economic contraction, and declining fund balance and liquidity could lead to a downgrade.