Detroit will use bond funds to finance more than half of the land it had to buy in a deal with Fiat Chrysler Automobiles to build a new assembly plant in the city.
At the beginning of May, the city announced that it had acquired 200 acres of land as part of its deal with the automaker to secure the factory. The cost of the land deals was $107.6 million. The city's portion totals $50 million.
The city will use $26 million in bond funds from a deal completed last December and $10 million in bond funds from the city’s bankruptcy exit financing to cover part of the cost.
The remaining funds will come from a $7.5 million loan to the Detroit Brownfield Redevelopment Authority and $7.1 million from the sale of the city's Millennium Garage.
Michigan is providing tax incentives valued at $223.5 million and is expected to contribute a total of $261 million to facilitate the FCA project.
City council members on Tuesday gave final approval on the project’s community benefits agreement and land-swap proposals involved in the deal. The council also approved industrial facilities exemption certificates for two properties that allow for a 50% tax abatement for the automaker for up to 12 years.
Fiat Chrysler plans to invest $1.6 billion in expanding its Mack Avenue facilities with a new plant and investing $900 million to modernize its Jefferson North Assembly Plant. The plant expansion is expected to add nearly 5,000 jobs. The new facility will be the first new assembly plant to be built within Detroit’s city limits in nearly three decades.
Mayor Mike Duggan credited the support of Gov. Gretchen Whitmer and the Michigan Economic Development Corporation for helping to secure the factory and the jobs that go with it. “This is a great example of partnership and cooperation between the city and state to bring these opportunities to our city and this region of our state. I am grateful to the Michigan Strategic Fund board for its approval of state support for this project,” he said in a statement.
The city accessed the bond market on its own credit at the end of last year with a $135 million junk-rated deal. The new money unlimited tax general obligation bonds are part of $225 million in tax-exempt borrowing the city council has authorized. The remaining bonds are projected to be issued in 2021.
Moody’s Investors Service said the Fiat Chrysler deal is a credit positive for the city because new jobs would boost the city’s income tax collection, Detroit’s largest revenue source, comprising over a quarter of operating revenues in fiscal year 2018.
Moody’s rates Detroit's general obligation bonds Ba3, three notches below investment grade, and last upgraded the city nearly a year ago. S&P Global Ratings in February upgraded the city’s general obligation ratings to BB-minus — also three notches away from investment grade — from B-plus.
