DALLAS -- The Detroit city council Tuesday approved $125 million in borrowing to pay for projects aimed at revitalizing the city’s neighborhood commercial corridors.
About $80 million of the bond revenue would fund major infrastructure improvements and the other $45 million will complement existing road funds to improve 300 miles of city roads.
“Thanks to City Council’s unanimous support of this program, neighborhoods across the will be seeing significant investment and physical improvements,” said Mayor Mike Duggan.
The bond sale must next be approved by the Financial Review Commission, which has provided oversight of city financial decisions since its emerged from Chapter 9 bankruptcy, and the Michigan Finance Authority. The bond deal is expected to be closed in mid-November, at which time the city would be able to start drawing off of those funds.
Duggan announced plans for the private placement in early October. The investments are aimed at improving business districts outside of the downtown area, making them more attractive and accessible to spur retail development. While the city's downtown has seen a good deal of development since the city emerged from Chapter 9 in late 2014, critics say neighborhood investments have fallen short.
The bonds will be issued through the Michigan Finance Authority and privately placed with JPMorgan in November pending approval of the commission and authority, according to city finance director John Naglick. The bonds will be secured by increased revenues the city is receiving from its share of state gas taxes and vehicle registration fees that have not been included in its current road improvement plan. The loan will generate a total interest cost of around 3% and annual debt service of no more than $13 million.
Under Duggan’s proposal, no city general fund dollars will be used to pay back the bonds.
The $125 million in projects funded by the bond funds are part of a larger $318 million five-year road improvement plan. The city plans to spend $193 million of city, state and federal money to fix hundreds of miles of city roads, as well as sidewalks, over the next five years.
Duggan is seeking a second term and will face state Sen. Coleman Young II in the Nov. 7 general election. He has built his platform for re-election on the promise to build on the economic progress since the city exited bankruptcy.
Detroit is rated B with a stable outlook by S&P. Moody’s Investor Service upgraded the city’s issuer credit rating to B1 from B2 with a stable outlook on October 13. The upgrade does not apply to bonds issued by the city.
On October 12, the city launched a request for proposals to find banks to lead a tender offer and refunding of $631 million of unsecured B1 and B2 notes and $88 million of unsecured C notes that were distributed to a limited number of parties as part of the implementation of its plan of adjustment to exit Chapter 9 bankruptcy.