Wayne County, Michigan Earns Four Notch Upgrade: Fitch

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DALLAS -- Wayne County, Mich. took a big leap toward leaving junk territory, winning a four notch upgrade from Fitch Ratings 10 months after entering into a state consent agreement to turn around its finances.

Fitch Ratings raised the county's issuer default rating to BB-plus, one notch below investment grade, from B in recognition of the county's progress toward structurally balancing its books by realigning its expenditures and long-term liabilities profiles with expected revenues.

"The disciplined implementation of our Recovery Plan has turned the county's finances around and put us on a path to fiscal stability," said Wayne County Executive Warren Evans. "Although there is still a lot of work to be done before the county's finances are completely stabilized , the Fitch upgrade of our credit rating is confirmation that we are on the right track."

The Fitch action follows a recent outlook change from S&P Global Ratings that also moves the county closer to restoration of its investment grade. It revised the outlook on the county's limited-tax general obligation debt to positive from negative and affirmed its BB-plus rating. In February, Moody's Investors Service revised the outlook on its Ba3 GO limited tax bond rating upward to stable from negative.

The county's improved credit standing should help it access the bond market at more affordable rates to finance the completion of the partially constructed Gratiot Jail, Evans said. The county sold $200 million of taxable recovery zone economic development bonds in December 2010 through the Wayne County Building Authority to fund the Gratiot Jail and can't abandon the project unless the bonds are fully paid off. It has spent about $157 million so far.

Although an alternative idea of converting the jail site into a Major League Soccer stadium has been tentatively floated by businessman and developer Dan Gilbert, the county has remained steadfast that completing the jail is the best option for Wayne County taxpayers. Gilbert is the founder of Quicken Loans.

Wayne County, which because of financial distress has been working under a state consent agreement since 2015, halted construction of the Gratiot jail in 2013. Cost overruns already had driven the original projected budget of $220 million to $390 million.

The abandoned jail project costs Wayne County an average of $1.2 million every month from its general fund for bond payments.

In his March State of the County address, Evans said solving the county's financial crisis will improve its ability to borrow money for essential projects like the jail. The county hasn't yet said how much more it will need to borrow to complete the jail.

The upgrade also means that Wayne County is on track to be released from state oversight as soon as this year.

"The county is eligible to be released from the consent agreement when the county executive certifies and the state treasurer concurs that financial stability has been restored, the county has repaid amounts owed to the state, and audited financial statements show the county is not required to submit a financial plan under existing state law," said Fitch. "The county anticipates release within one year from now."

Fitch's action impacts $81.7 million of Fitch-rated limited tax general obligation bonds issued by the county.

It also impacts $47.5 million of stadium refunding bonds, series 2012 that were issued by Wayne County's Stadium Authority and $195.45 million of building authority bonds issued by Wayne County's Building Authority. The rating outlook is stable.

The county, which has been working under a state consent agreement since September 2015, has eliminated a nearly $100 million accumulated deficit and a yearly structural deficit of approximately $52 million by implementing the Recovery Plan that realigns expenditures and long-term liabilities to match revenue.

The county is still challenged by unfunded pension liabilities, tallied at $840.5 million in its most recent pension audit in 2014.

It is required to make a $63 million payment this year as part of its annual obligation to the pension fund. Earlier this month, Evans announced plans to make $71.5 million of supplemental pension payments.

The county would use $57.5 million from its tentative agreement to sell a county-owned sewer system to Downriver Utility Wastewater Authority to cover part of the payment. The county also anticipates making a $14 million payment from fund balances.

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