Moody’s Investors Service last week downgraded Lansing to A1 from Aa2, warning that the Michigan capital faces significant declines in property valuation and has a history of operating deficits.
The downgrade affects $43.1 million of outstanding general obligation limited-tax debt and $2.7 million of lease revenue bonds. The operating deficits have reduced the general fund reserve to narrow levels, Moody’s said.
On the plus side, the city still has revenue-raising flexibility since it can increase operating millages under state law. Lansing also has a manageable debt burden, with bonds that feature rapid principal amortization, and it is strengthened by its position as the state capital.
Moody’s could cut the rating again if the city continues to draw on the general fund and budget stabilization reserves or adds to its debt burden. Stabilization of Lansing’s tax base could mean an upgrade, analysts said.