Standard & Poor’s last week downgraded the city of Allen Park deeper into junk-bond territory, dropping its long-term rating on the Michigan city’s unlimited-tax and limited-tax general obligation bonds to B from BB-plus.
S&P also placed the city on creditwatch with negative implications. The city’s weak fiscal position has been weakened by the 2009 and 2010 issuance of $31 million of limited-tax GO bonds to support a now-failed film studio project.
With insufficient lease revenue generated to cover debt service, Allen Park has been forced to dip into its general fund to cover payments, which has nearly doubled its deficit. In May, voters will weigh a four-mill property tax hike that would generate $2.6 million annually, enough to cover GO debt service payments.
The downgrade comes after officials announced a decision to issue tax anticipation notes and roll those over into long-term bonds in August with an emergency loan from the state. But the City Council hasn’t approved the plan, and officials have not yet started to talk with the state about obtaining an emergency loan.
“Uncertainty remains as to how the city will acquire the funds necessary to meet its financial obligations for fiscal 2012,” analyst Caroline West wrote. “Even if the city issues Tans and successfully meets its fiscal 2012 obligations, in our view, the city still faces severe long-term budget pressures.”
The B rating reflects Allen Park’s depleted general fund, insufficient lease revenues to pay debt service, the city’s plan to issue bonds in 2012 to cover its obligations, and a projected 2013 budget gap of $4 million, analysts said.