Press Release

Second consecutive Moody’s rating upgrade puts Detroit on the cusp of Investment Grade status

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April 5, 2023

Press Release

•    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.

Moody's Detroit Credit Opinion 4.6.2023

Moody's Rating Action Detroit 4.5.2023