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• 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.”

•    Moody’s upgrades Detroit bond rating to Ba1 from Ba2 with positive outlook

•    Moody’s noted the City’s ability to manage rising pension costs, solid budget management and continued revenue growth as reasons for upgrade

•    Highest rating from Moody’s since January 2009

The City of Detroit’s bond rating has been upgraded once again by Moody’s Investors Service, bringing Detroit one step away from Investment Grade status, which it has not had since 2009. The upgrade follows nine consecutive years of balanced budgets since the city exited bankruptcy in December 2014 and an economic resurgence in the city.

In a report issued Wednesday, Moody’s announced it has upgraded Detroit’s rating to Ba1 with a positive outlook, a move that reflects the improvement and strengthening of the city’s financial position and structural balance.  This rating marks a second consecutive year in which Detroit has seen an upgrade from Moody’s. Last year Detroit was upgraded from Ba3 to Ba2 with a ‘positive’ outlook, which was the City’s first upgrade from Moody’s since 2018.

“Chief Financial Officer Jay Rising and his team have done a fantastic job of managing our city’s finances and they deserve a great deal of credit for this latest upgrade,” said Mayor Mike Duggan. “Going from bankruptcy and state financial oversight to being within striking distance of an investment grade rating in less than 10 years is a tremendous accomplishment.”

Higher ratings mean lower costs for governments when they borrow funds to pay for various investments and upgrades.  Those lower costs also translate to resources that instead can be applied to city services that further improve the quality of life in city neighborhoods.

The improved bond rating is indicative of the City’s financial strength and management, according to the Moody’s report:

“The issuer rating was upgraded to Ba1 because the city is well positioned to manage its rising pension contributions for at least the next few years. The city’s solid budget management and robust revenue growth have enabled it to accumulate resources in an irrevocable trust and increase its available fund balance to levels that are strong compared to peers,” noted Moody’s. 

Rising responded to Moody’s upgrade by commenting that: 

“This latest upgrade by Moody’s is significant evidence of the City’s continuing fiscal recovery that has been marked by multiple years of balanced budgets and a growing tax base.  Our goal remains to have an investment grade restored.   We believe we've earned investment grade credit and will continue our strong fiscal management while carrying out the job and economic growth strategies of the administration in partnership with City Council.”

In previous years, Moody’s opined that Detroit needed to demonstrate structural balance. The pending pension cliff in Fiscal Year 2024—when the City will resume contributions to the Legacy Pension Funds—impacted Detroit’s credit rating for a decade. To address that risk and protect retiree pension funding, in 2017 the City established and began building reserves in the Retiree Protection Fund (RPF). The RPF balance reached $473 million in assets in 2023.

The City will draw on the RPF to offset pension payments beginning in FY2024, successfully easing the “cliff” into a manageable ramp and clearly demonstrating structural balance.  Moody’s confirmed the importance of this commitment in commenting that: 

“The City’s rating is likely to move upward if… the city is able to continue to make progress in absorbing pension contributions and inflationary cost growth into its budget without adversely impacting its financial operations.” 

Detroit’s Economic Recovery “is real, sustained”

The report also highlights the City’s diversifying economic base and strengthening job growth. 

 “… the city's economic recovery is real, sustained over several years and likely to continue given the pipeline of downtown development projects and the substantial investments made by automakers in battery and electric vehicle manufacturing in both the city and region. For example, Waymo, a subsidiary of Alphabet Inc. (Aa2 stable), opened a self-driving car facility; General Motors (Baa3 stable) is reconfiguring its Detroit-Hamtramck Assembly Center into Factory Zero, a fully dedicated electric vehicle assembly plant; Stellantis (Baa2 stable) retooled it facilities to build an all-electric Jeep; Ford Motor Company (Ba2 stable) restored Michigan Central Station and is developing an adjacent innovation center for as many as 5,000 employees.”

Moody’s indicated several key factors that could lead to future rating upgrades: 

•    Prudent deployment of the city’s retiree protection fund and sustained absorption of pension contributions into the recurring revenue budget. 
•    Continued revenue growth that enables the city to manage its growing expenditure needs
•    Strengthening of full value per capita, median household income and population trends

Moody’s rating is based upon economic and demographics measures, as well as possible notching factors as defined by the US Local Government General Obligation Debt methodology. The full report can be found below.

• City’s revenue outlook continues to improve led by growing income taxes
• Detroit economy showing resilience amid projected national recession
• City-led efforts to bring good-paying jobs to Detroiters driving economic recovery and growth

On February 13, the City of Detroit held its regular biannual Revenue Estimating Conference to receive an update on the Detroit economic outlook and approve revised economic and revenue forecasts for the remainder of fiscal year 2023 and for fiscal years 2024 through 2027. 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 Remains Resilient 

The Detroit Economic Outlook for 2022-2027, previously released earlier in February, predicted that Detroit’s economy will continue growing at a steady pace, despite projections of a mild national recession in late 2023 to early 2024. Demand for good-paying blue-collar jobs, spurred by City-led efforts driving economic opportunity and growth for Detroiters, prove to be a major factor in the City’s economic resilience. Consequently, the City’s revenue outlook continues to improve despite economic challenges at the national level.  

In line with the economic outlook, the Revenue Conference has approved higher revenue estimates based on stronger projected income and utility tax collections. Updated forecasts show employment stability in key sectors, boosting income tax collections as wages continue to catch up to prices.  Stronger than expected internet gaming collections and elevated natural gas prices have offset weaker on-site gaming collections, increasing revenue expectations. All other revenues are expected to see stable but more modest growth.   

As with any economic and revenue forecast, there are potential risks to the estimates agreed to today, the largest being slower employment and wage growth should national economic trends and the monetary policy response prove more adverse.  Future gaming behavior at Detroit’s casinos, such as larger than projected internet gaming substitution effects, remain a risk as well. Conversely, additional development projects and labor force gains would help bolster revenue growth. Proposed increases in State Revenue Sharing and other funding in the State Budget provide potential upside to the forecast too.  

“Despite projections of a mild national recession, the Detroit economy has proven to be more resilient today supported by the administration’s growth and opportunity strategies. The revenue estimates are in part a direct reflection of that resiliency. As we navigate economic risks ahead, we will continue to provide fiscal stability through conservatively balanced budgets that protect Detroit’s ability to fund its obligations while improving the quality of life for Detroiters,” said Jay Rising, Chief Financial Officer, City of Detroit. 

**Revenue Estimating Conference Results ** 

The City presented FY2023 General Fund recurring revenues projected at $1.226 billion for the current fiscal year ending June 30, up $39.1 million (3.3%) from the previous FY2023 conference estimate in September 2022. The increase is driven by stronger anticipated income tax collections and utility users tax collections. In addition, the City is projecting $3.1 million in non-recurring revenues this year.  General Fund recurring revenues for FY2024, which begins July 1, are now forecasted at over $1.253 billion, an increase of $39.2 million (3.2%) from the previous FY2024 conference estimate in September 2022. The projected increase is driven by income taxes, as the local economy stabilizes and adjusts to a tight labor market. The conservative General Fund revenue forecasts for FY2025 through FY2027 show continued, but modest, revenue growth of around 2% per year on average, led by income tax growth.  

The estimates approved today will set the revenues for the City’s FY2024 Budget and FY2024 through FY2027 Four-Year Financial Plan. 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 of the recorded Revenue Estimating Conference and PDFs of slide presentations below. 

• February 2023 Revenue Conference - Detroit Economic Outlook Slides
• February 2023 Revenue Conference - Revenue Estimates Slides
• Link to Zoom recording of February Revenue Conference

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