Press Release

Detroit Receives Credit Rating Upgrade from Stable to Positive by Moody's

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February 26, 2020

Press Release
  • Moody’s rating outlook revised from stable to positive
  • Moody’s credited Detroit for its robust reserves, strong financial planning practice, and its ability to meet and exceed its budget demands

Moody’s has raised the City of Detroit’s credit outlook to ‘positive’ in a report issued today, a move the ratings agency said reflects the improving and strengthening of the city’s financial position.

Detroit last saw an upgrade from Moody’s in 2018, when Detroit was upgraded to Ba3 with an outlook of ‘stable’. Today, the new outlook of ‘positive’, represents that the City has continued moving in the right direction towards financial stability.

“The city's conservative budgeting practices, growing revenues and reduced fixed costs achieved through bankruptcy have led to a rapid rise in financial reserves,” The Moody’s report said, while noting that “social considerations are also material. The city has been able to improve its provision of basic city services to a population that is primarily low income.”

The report also highlights the City’s strengthening job growth and its positive impact on the City’s thriving economy. “The employment trajectory of Detroit is fundamentally improved,” the report noted. “Even before the 2007-09 recession, both Detroit and the State of Michigan continued to lose jobs while the rest of the nation expanded. The story has been different during the current economic expansion, with Detroit and Michigan initially growing jobs at faster paces than the nation.”

Some factors that led to the rating improvement, according to Moody’s:

  • Very strong financial planning practices include annual revenue setting conference, long-range financial planning and conservative budgetary assumptions
  • A favorable trend in job growth and its impact on the city’s tax base and tax collections
  • Improvements in the City’s budget to finance service improvements, capital investments and accommodate a large spike in pension contributions
  • Robust operating performance has resulted in the accumulation of very healthy reserves while also enhancing the capacity of the city to provide services and prepare for rising fixed costs

The Moody’s report also cited the City’s recurring expenses in comparison to revenue over the next six years. “The city projects that recurring expenses will begin to exceed recurring revenue in fiscal 2026. However, we recognize that long-range forecasts typically produce budget gaps and we expect the city can close these gaps with moderate budgetary adjustments,” the report noted.

“It’s gratifying to see Moody’s recognize the fiscal responsibility of City Council and the administration,” said Chief Financial Officer David Massaron. “While we’re making extensive progress, we have to continue to plan for financial contractions and set-aside funds for our pension obligations while making investments that improve quality of life in the City.”

As referenced in the report, “Continuation of positive revenue trends and maintenance of ample reserves will be critical in improving the city's capacity to absorb a scheduled spike in pension contributions in fiscal 2024 and to finance needed capital investments.”

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.

Moody's Credit Opinion Detroit 2.26.2020

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