SAN FRANCISCO - Fitch Ratings Friday downgraded Michigan's credit rating to A-plus from AA-minus, citing a "significant deterioration" of the state's economy triggered by the sharp decline of the automotive manufacturing sector.
The action makes Michigan one of only three states Fitch places below the AA level, along with A-plus Louisiana and BBB California. Michigan's outlook was revised to stable from negative in connection with the downgrade.
Despite the "relatively orderly" conclusions to the bankruptcies of Chrysler LLC and General Motors Corp., Fitch believes the state's economy will continue to experience pressure from its high exposure to the automotive industry, which is expected to result in continued employment reductions in the near term.
"We're somewhat surprised by Fitch's announcement given that Standard & Poor's and Moody's just reaffirmed their respective ratings for Michigan," said Terry Stanton, spokesman for the Michigan Department of Treasury.
Standard & Poor's assigns Michigan general obligation bonds its AA-minus rating and a stable outlook, and Moody's Investors Service assigns its Aa3 rating, revising its outlook to negative in March.
"We have a bit of a differing opinion on the effects of the bankruptcies of Chrysler and General Motors," Stanton said. "Our revenue and economic projections for the remainder of fiscal 2009 and for fiscal 2010 took the effects of the bankruptcies and the contraction of the automotive industry into account."
According to Fitch, Michigan lost more than 165,000 automotive and automotive parts manufacturing jobs between 2000 and 2008, with an estimated loss of 50,000 more through this May, "with limited recovery expected."
That has had a knock-on effect on the state budget.
The state's official revenue projections for fiscal 2009, which runs through September, have been cut by $2.2 billion, or almost 12%, since the year began, according to Fitch.
Those declines include a 16% drop in income tax revenue and an 8% drop in sales tax collections.
Fitch said the stable outlook is warranted because of Michigan's history of promptly addressing budgetary imbalances resulting from economic contractions and expectation that the state will take appropriate actions to maintain balance going forward.
"Bolstering the state's credit profile are lower moderate debt levels and strong fiscal management," the rating agency said.
The state has net tax-supported debt of less than $8 billion, or 2.2% of 2008 personal income, according to Fitch.
In conjunction with the downgrade to the state's GO credit, Fitch also downgraded and revised the outlook to stable from negative on other state tax-supported bonds.
Michigan school loan fund program bonds were dropped to A-plus from AA-minus; Michigan State Building Authority revenue bonds were dropped to A from A-plus; Michigan Municipal Bond Authority local government loan program revenue bonds were dropped to A-plus from AA-minus; and municipal bond authority school program and school loan revenue refunding bonds were downgraded to A from A-plus.