CHICAGO — Moody's Investors Service warned Monday it is keeping Detroit on review for downgrade through at least November as it awaits the result of a ballot proposal and litigation surrounding the state's emergency management law.
The possible ratings action applies to the city's already-junk-rated $964 million of general obligation debt and $1.5 billion of certificates of participation, and its low-investment-grade water and sewer bonds.
"The maintenance of the review action for possible downgrade is based on the ongoing uncertainty surrounding Public Act 4 and the yet-unknown impact of the suspension of PA 4 on the city's fiscal 2013 budget," Moody's said in a brief report released Monday.
The state in August suspended Public Act 4 automatically after the elections board certified a ballot proposal to overturn the controversial law.
The suspension triggered the revival of Public Act 72, Michigan' previous EM law, which lacks many of the powers of the new law.
Detroit operates under a consent agreement with the state that has several ties to PA 4, and it remains unclear how the law's current suspension or future possible defeat would impact the agreement.
Mayor Dave Bing over the summer relied on PA 4 to implement $102 million of wage and benefit cuts. City and state officials argue that the contract changes are key to the city's fiscal stability and that they are legal despite the suspension.
The Detroit Police Officers Association, however, has challenged the contract changes based on the suspension.
"Given the budgetary relief from changes to employment terms for city employees, any rollback of expected personnel savings could be a credit negative given the city's ongoing narrow cash position," Moody's said in the comment.
Moody's said it expects to resolve the review in November.
Moody's rates Detroit's GO unlimited-tax bonds and certificates of participation B3 and its limited-tax GO bonds Caa1. It rates the city's water and sewage revenue senior- and second-lien bonds Baa2 and Baa3, respectively.
In related news, the Detroit City Council Tuesday halted a plan to turn over a popular park to the state as a way to save money. The council indefinitely delayed a required public hearing on the plan, saying it did not have enough guarantees as part of the plan to lease Belle Isle to the state for 30 years.
The state planned to take over the park, charging a $10 annual vehicle fee to raise money, and reportedly issue $20 million of bonds for capital improvements.
Bing said the plan would save the city $6 million a year.
