Moody's Investors Service said it has downgraded to Aa3 from Aa2 the rating on the city of Dearborn, Mich.'s outstanding general obligation unlimited tax debt and removed the negative outlook.
Moody's has also downgraded to A1 from Aa3 the rating on the city's outstanding general obligation limited tax debt. The city has $207 million of general obligation unlimited tax debt and $12.9 million of general obligation limited tax debt outstanding.
The downgrade to the Aa3 rating is primarily based on a steady narrowing of the city's financial position over the past eight years. While earlier declines in general fund balance had followed the city's decision to support capital investments with available reserves, declines over the past three years have been tied directly to tax base depreciation and loss of operating revenue.
The rating also incorporates the city's large tax base in southeast Michigan (GO rated Aa2/stable) that remains closely tied to the automobile industry, significant tax base concentration by Ford Motor Company (senior unsecured rated Baa3/stable), considerable devaluation of property values over the past seven years, and a manageable debt burden.
The A1 general obligation limited tax rating is one notch below the unlimited tax rating due to the limited levy available to pay debt service. Debt service on outstanding general obligation limited tax bonds is payable from all operating funds of the city, which are subject to levy limits. Removal of the negative outlook is based upon the expectation that the city's financial operations will likely remain stable going forward, supported in part by passage of a general operating levy increase in November 2011.