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• City’s revenue outlook continues to improve, thanks to strength of income tax and continuing efforts driving economic opportunity and growth for Detroiters 
• Recurring General Fund revenue estimates total $1.28 billion in the current fiscal year, up $31 million from the previous conference estimates 
• Additional development projects throughout Detroit could bolster more robust levels of revenue growth. 

On September 11, the City of Detroit held its regular biannual Revenue Estimating Conference to receive an update on the Detroit economic outlook and to approve revised economic and revenue forecasts for the remainder of fiscal year 2024 and for fiscal years 2025 through 2028. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available for its annual budget and four-year financial plan. 

Revenue Outlook Continues to Improve 

The Detroit Economic Outlook for 2022-2028, which was previously released in August, predicts the City’s economy will continue to see steady growth, with increasing jobs and wages. The forecast is prepared by the City of Detroit University Economic Analysis Partnership, which is a collaboration of economic researchers from the City, Wayne State University, Michigan State University, and the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan. 

The City’s revenue outlook continues to improve, thanks to the strength of our income tax and our continuing efforts driving economic opportunity and growth for Detroiters. The Revenue Conference has revised revenue estimates moderately upward for the current fiscal year based on stronger tax collections concluding the previous fiscal year, Detroit's continued economic growth and stability, and revenue sharing increases provided in the State Budget enacted in July. Income taxes continue to lead revenue growth in future years, in line with the City’s economic forecast.  

These revenue estimates are based on the most recent economic projections and forecasting models. As with any economic and revenue forecast, there are potential risks to the estimates approved today, including unexpected changes in local employment and current income tax collections, as well as competing State budget pressures affecting forecasted revenue sharing. However, the City’s efforts to continue attracting major employers and providing Detroiters with opportunities for good-paying jobs provide potential revenue upside to the forecast.  

“The steady growth projected for Detroit’s economy is reflected in the stability and growth in our revenue forecast. We will continue as in prior years to provide fiscal stability through balanced budgets that protect Detroit’s ability to fund its obligations while further improving the quality of life for Detroiters,” said Jay Rising, Chief Financial Officer, City of Detroit. 

Revenue Estimating Conference Results 

The Revenue Conference reported FY2024 General Fund recurring revenues projected at $1.284 billion for the current fiscal year ending June 30, 2024, up nearly $31 million (2.5%) from the previous conference estimate in February 2023. The increase is driven by our growing income and property tax base and revenue sharing increases provided by the State of Michigan. The FY2024 revenue estimates also include an additional $25.8 million of non-recurring revenues, primarily from short-term investment earnings. 

General Fund recurring revenues for FY2025, which begins July 1, 2024, are now forecasted at $1.315 billion, an increase of $31 million (2.4%) over the revised FY2024 estimates above. The projected increase is led by income taxes as the local economy continues to see steady growth in jobs and wages.  The out-year forecasts for FY2026 through FY2028 show continued overall revenue growth of about 2% per year.  

The City will use the estimates approved today to begin developing the City’s FY2025 Budget and FY2025 through FY2028 Four-Year Financial Plan. The conference will meet again to approve revised revenue estimates in February 2024. The voting conference principals are Jay B. Rising, the City’s Chief Financial Officer; Eric Bussis, Chief Economist, Director, Office of Revenue and Tax Analysis, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Professor Emeritus, Research Seminar in Quantitative Economics (RSQE), Department of Economics, University of Michigan. 

Please see links to the Revenue Estimating Conference presentation slides below. 

• September 2023 Revenue Conference – Detroit Economic Outlook Slides 
• September 2023 Revenue Conference – Revenue Estimates Slides 

To review past Revenue Estimating Conference Reports visit Financial Reports under Revenue Estimating Conference Reports section.

• Over $3 billion in orders from more than 67 unique investors, meaning that the bonds could have been sold more than 30x over
• Sale capitalizes on Detroit’s highest ratings in 14 years after S&P and Moody’s both upgraded the City to the highest non-investment grade rating, BB+ and Ba1 respectively, both with positive outlooks
• The deal took advantage of a strong market following the lowest inflation report in more than 2 years on Wednesday

City of Detroit bonds received an overwhelming positive response from investors in a return to the market Thursday, a clear indication that Detroit is seen as a good investment. City leaders issued the remaining $75 million of the voter-approved $250 million Proposal N (Neighborhoods) bond, a comprehensive plan to address vacant houses through rehabilitation or demolition along with $25M of previously voter-approved bonds for capital.  During the pricing, Detroit received nearly $3 billion of orders for its bonds from 67 unique investors or roughly 30 times as many orders as the City needed for its $100 million issue.

Proposal N neighborhood improvement bonds have been a key component in the Duggan administration’s Blight to Beauty campaign. According to Detroit’s Proposal N Demolition and Stabilization Tracker, that only tracks Proposal N activity, 4,239 homes have been demolished to date, while 1,540 have been secured for resell and 941 are being prepped for resell.

The City of Detroit priced $100 million Unlimited Tax General Obligation Bonds, consisting of $52.5 million Series 2023A (Tax-Exempt) Neighborhood Improvement Bonds (Social Bonds), $22.5 million Series 2023B (Taxable) Neighborhood Improvement Bonds (Social Bonds) for property rehabilitation, demolition, and remediation, and $25.0 million Series 2023C (Tax-Exempt) for certain transportation and recreation projects. An estimated 2,500 properties will either be demolished or stabilized with this latest bond offering.

The issuance remains aligned with the Mayor’s announcement of lowering the debt millage from 9 mills to 8 mills in 2023 and an additional reduction to 7 mills in 2024.

Ahead of the deal, the City of Detroit’s financing team led by Chief Financial Officer, Jay Rising met with many investors to market the transaction. As a result of investor meetings and years of effort improving Detroit’s credit, the City generated overwhelming demand for the bonds. The substantial interest from investors made it possible to accelerate the deal a week early and take advantage of a favorable market.   

During the pricing process, due to the significant demand for the bonds, the City and its underwriters were able to reduce the interest cost by lowering spreads 25 to 50 basis points across all maturities. “We are very pleased with the outcome of this pricing given the turbulent and high interest rate environment over the last year. The fact that the City of Detroit was able to garner $3 billion of orders at a time when very few issuers with similar ratings are able to enter the market is a testament to investors’ belief in Detroit’s credit story and upward trajectory,” said Rising.  

Seizing the Strong Market 

Interest rates have risen steeply over the past two years as the Federal Reserve issued ten consecutive rate hikes in its effort to combat inflation, bringing interest rates to their highest levels since 2007. While these rate hikes have generally made debt more difficult and costly due to the higher interest payments, the positive inflation news in last week’s, July Consumer Price Index report produced better than expected results and showed inflation falling to 3.0%--its lowest level since March 2021. The positive news reverberated through the markets as investors reacted favorably, lowering bond yields and creating a window of opportunity the City seized upon to obtain lower interest rates. 

Detroit on the cusp of Investment Grade 

Rating upgrades from both Moody’s and S&P have continued to recognize Detroit’s strong fiscal management and support the City’s vision behind Proposal N that blight reduction pays dividends to both residents and the City’s finances. In the most recent rating Moody’s highlighted the City’s positive outlook “because of ongoing strengthening of the city's financial operations including robust revenue growth and increasing reserves.”  S&P fortified the upgrade stating, “Detroit's financial position and economic condition are the strongest they've been in decades.” 

Detroit marketed the 2023A and 2023B Neighborhood Improvement Bonds with the “Social Bond” designation to attract Environmental, Social, and Governance (ESG) focused investors that are interested in financing socially beneficial projects.  This follows the 2021 Neighborhood Improvement Bonds which were also marketed as “Social Bonds” and won both the prestigious Bond Buyer Midwest Deal of the Year Award and the Environmental Finance Social Bond of the year award in the US Muni Bond category. 

Strong interest from the ESG Funds allowed the City to prioritize placement of bonds with investors supporting the sustainability goals recognized by Proposal N and to lower costs for the City.

• S&P upgrades Detroit Unlimited Tax General Obligation debt to BB+ from BB and upgrades Priority-Lien debt rating to BBB from BBB-, both with positive outlooks
• The upgrade reflects Detroit’s ongoing efforts toward building financial resiliency, as well as its commitment to robust financial planning and budgetary management
• This marks S&P’s second rating upgrade in two years and follows an equivalent upgrade earlier this month from Moody’s to Ba1 with a positive outlook, highlighting Detroit’s strong trajectory
• Both rating agencies place Detroit on the cusp of investment grade

S&P Global Ratings has raised Detroit’s General Obligation (GO) debt to a BB+ rating, noting the City’s strong fiscal management, positive financial results and improvements to reserves and liquidity. At the same time, S&P upgraded its rating on Detroit’s Public Lighting Authority and Income Tax backed debt issued through the Michigan Finance Authority (considered Priority-Lien debt because of their pledge of specific tax revenues) to BBB from BBB-.  Additionally, S&P assigned a positive outlook to both GO and Priority-Lien debt: “The positive outlook reflects our view of Detroit's recent revenue growth and forecasts showing that it can follow through with its financial plan,” signifying an expectation of another rating upgrade in the next one to two years. 

S&P’s credit action follows an equivalent rating upgrade to Ba1 from Ba2 issued by Moody’s earlier this month, also with a positive outlook. The back-to-back announcements highlight the incredible progress since the City entered bankruptcy just under 10 years ago.  

S&P remarked that, “Ten years on from its bankruptcy filing, Detroit's financial position and economic condition are the strongest they've been in decades. Liquidity and reserves are at record levels, the debt burden is manageable, population decline is flattening, the stock of blighted and vacant properties is down considerably thanks to extensive city-managed programs, assessed property values have increased in five consecutive years […], and taxable wages continue to grow.”  

Cusp of investment grade 

Both rating agencies have Detroit one notch away from investment grade. This is the highest rating the City has held from S&P since the beginning of 2009. Improved bond ratings are indicative of a city’s finances and financial profile, and higher ratings mean lower costs for governments when they borrow funds to pay for various capital improvements. 

While the Plan of Adjustment (POA) and restructuring process provided support to recover, as well as recent federal aid from the pandemic, S&P attributed much of the positive developments to the City’s own strong management. 

 “In our view, concerted management action and institutional support to not only recover from bankruptcy, but to revitalize Detroit's economy and finances, enabled the city to capitalize on its situation. The post-financial-crisis economic recovery aided the city, but city policies (such as increasing public safety responsiveness and revamping public lighting) and new economic development initiatives expanded opportunities and buttressed the city's reputation, accelerating credit improvements. These improvements are significant compared with forecasts in the POA.”  

S&P further indicated the potential upside scenario for Detroit if the city maintains adherence to its financial plan:  

“All else equal, we could raise the rating if it becomes apparent that RPF draws will not accelerate over the next several years, increasing the certainty that pension contributions can be absorbed within the operating budget. Ongoing revenue growth and improvements in macroeconomic conditions could also contribute to a higher rating.”  

Detroit Chief Financial Officer, Jay Rising noted: 

“The back-to-back ratings upgrade from Moody’s and now S&P reflect the overall success of the financial and economic strategies the City has employed.  S&P’s upgrade and positive outlook validate that belief that the creation of a safer, healthier, beautiful and economically vibrant City have driven positive financial results.”