Detroit outlines financing plans for neighborhood upgrades
DALLAS -- Detroit will use proceeds of a planned $125 million private placement to revitalize neighborhood commercial corridors.
The city also 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.
Detroit Mayor Mike Duggan announced the plans Thursday although city finance officials have previously disclosed the planned private placement. 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 bankruptcy in late 2014, critics say neighborhood investments have fallen short.
“Every day, many Detroiters drive from their homes past underutilized business districts to shop outside of our city,” Duggan said in a press release. “Using these bond funds, we are going to revitalize many of our neighborhood commercial corridors to create vibrant, attractive districts so Detroiters have a place to shop in their own neighborhood.”
The bonds will be issued through the Michigan Finance authority and privately placed with JPMorgan in November, pending approval of the city council and the Detroit Financial Review commission, 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.
Under Duggan’s proposal, no city general fund dollars will be used to pay back the bonds and no road maintenance activities or construction projects will be cut.
Naglick said that delayed draw term loan commits the city to borrowing $125 million but there is no negative arbitrage because the city pays interest as it draws the funds. The loan will generate a total interest cost of around 3% and annual debt service of no more than $13 million.
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. The incumbent has acknowledged there's much more to be done and he's announced several plans aimed at investing in neighborhoods.
Since exiting bankruptcy Detroit has tapped the public bond market twice: in August 2015 with $245 million of local government loan program revenue bonds and in August 2016 with a $615 million general obligation/distributable state aid backed bond sale. Both deals were issued through the Michigan Finance Authority. The 2015 debt was enhanced with a statutory lien and intercept feature on the city's income taxes, which landed an A rating from S&P Global Ratings.
Detroit is rated B with a stable outlook by S&P and B2 with a stable outlook by Moody’s Investors Service.