Moody’s Investors Service upgraded Detroit’s credit rating to Ba2 with a “positive” outlook in a report released Wednesday that, according to the rating agency, reflects an improvement and strengthening of the city’s financial position. The announcement came days after Mayor Mike Dagan presented to the city council his recommended 8th consecutive balanced budget.
The last time Detroit updated Moody’s was in May 2018. This is the first time since 2009 when the city received a Ba2 rating. Improved bond ratings indicate the city’s finances and financial profile, and higher ratings mean lower costs for governments if they borrow money to pay for various capital improvements.
“Detroit’s revenue base has been hit by economic disruptions caused by the pandemic. Income taxes have fallen due to non-residents working remotely, and tax rates have been suspended when casinos close, ”Moody’s said in a statement. “Despite this pressure, Detroit has posted its sixth consecutive operating surplus in fiscal year 2021, and in fiscal year 2022 it continues to run another strong year.”
The report also highlights the diversification of the city’s economic base and strengthening job growth. “Detroit is ready to further expand its employment base with General Motors, Ford Motor Company, Stellantis NV and a number of car suppliers that are making large investments in the city, creating thousands of jobs. Detroit is also a logistics hub, a position to be reinforced by a second international crossing under construction, the Gordy Howe International Bridge. Huntington Bank, which recently acquired Chemical Bank and TCF bank, is making its commercial banking headquarters in Detroit with a new 20-story building under construction. ”
Moody’s identified several key factors that led to the rating increase:
- Despite the disruptions, the trajectory of incomes to the city of jobs and income tax revenues is positive
- The situation in the reserve is quite healthy and growing
- Very strong financial planning techniques include annual revenue assessment conferences, long-term financial planning, and conservative budget assumptions
The Moody’s report also cites an early response from city officials that mitigated pandemic losses and a favorable revenue trajectory for Detroit, noting that “the city is fully prepared to further strengthen its finances over the next two fiscal years.”
Moody’s noted that factors that could lead to future updates include:
- Reliable revenue growth that makes fixed cost growth easier to meet
- Strengthening the total cost per capita, average family income and population trends
- Accumulating additional resources in irreversible trust to reduce budgetary risks of rising pension costs
Detroit CFO Jay Raising says “Moody’s update is a testament to the hard work being done to rebuild the city from bankruptcy.” “We know that we have even more work ahead of us, and we are confident that we will overcome the problems with the city’s credit related to the risks associated with future pension funding,” Raising said.
Moody’s rating is based on economic and demographic indicators, as well as possible performance factors determined by the methodology of the general commitment of US local government. The full report can be found below.