CHICAGO — Detroit suffered fresh blows to its credit standing this week, while Michigan faces its own legal setbacks tied to its efforts to impose oversight on fiscally hobbled municipalities.
The state team reviewing the Motor City’s finances declared Wednesday that the city is in severe financial distress, ensuring some type of state intervention will be urged when the team completes its review Monday.
Meanwhile, Fitch Ratings Thursday downgraded the already below-investment-grade ratings on the city, warning its finances are in an “unusually weak and declining position.”
Fitch’s downgrade comes just two days after Moody’s Investors Service hit the city with a two-notch drop. That move triggered a termination event on interest rate swaps hedging $800 million of debt, raising the possibility that Detroit would have to pay $350 million to the swap counterparties.
Fitch cut its rating to B from BB-minus on the city’s $553 million of unlimited-tax general obligation bonds and to B-minus from B-plus on $486 million of limited-tax GO bonds.
Another $1.5 billion of pension obligation certificates of participation were downgraded to B from BB-minus.
Like Moody’s, Fitch kept the city on negative watch even at the lower level.
Fitch said it took the actions because of ongoing delays on both city and state levels to deal with Detroit’s fiscal crisis.
“Fitch sees no assurance that the considerable hurdles to implementing urgently needed changes in the city’s financial profile will abate,” analyst Amy Laskey wrote in the downgrade report. “In addition to delays in the city’s implementation of spending cuts, the state is now delayed in its ability to impose corrective action.”
The state delay comes from an Ingham County Circuit Court judge’s decision earlier this week that bans the state and city from signing a final consent decree until March 29.
That’s four days after a final agreement needs to be made with Detroit to comply with Michigan law, according to Gov. Rick Snyder.
Ingham County Circuit Court Judge William Collette Thursday refused a request by the state to stay his order.
The state planned to file an appeal with the Court of Appeals as soon as Thursday afternoon, according to treasurer spokesman Terry Stanton.
Also Wednesday, another Ingham County Circuit Court judge removed the emergency manager of Flint, restoring power to the mayor and City Council, saying the state team reviewing that city’s books also violated the open meetings act.
The open meetings act case also led to the temporary removal of a Highland Park school district emergency manager last month. The state has appealed those rulings.
Another pending lawsuit argues that the state’s emergency financial management law takes away citizens’ rights to vote for and petition local government.
The lawsuits, coupled with a grassroots effort to overturn the new law by putting it on the ballot in November, has thrown the future of the law into doubt.
The state review team faces a Monday deadline to recommend to Snyder that he either appoint an emergency manager or allow a consent decree.
Detroit Mayor Dave Bing Wednesday submitted to the state treasurer a counterproposal to Snyder’s consent decree, which Bing and the City Council rejected last week as a state takeover.
Bing’s proposal was not yet made public, but an early version gives the mayor powers similar to an emergency manager while diluting the power of a financial advisory board that Snyder proposed to oversee the city’s finances. Detroit and state officials were continuing to negotiate Thursday, said Bing spokesman Naomi Patton.
State Treasurer Andy Dillon, who is on the state review team, said he was “cautiously optimistic” after viewing Bing’s counterproposal. “It’s a creative approach,” he said on a local morning radio show.