Fitch Ratings said it has downgraded the following Kalamazoo, Mich., ratings: implied unlimited tax general obligation (ULTGO) bond rating to AA from AA-plus; $3.1 million Michigan Transportation Fund (MTF) limited tax general obligation (LTGO) bonds to AA from AA-plus; $17 million capital improvement LTGO bonds to AA-minus from AA-plus; $2.1 million downtown development LTGO bonds to AA-minus from AA-plus; and $22.8 million Kalamazoo Building Authority LTGO bonds to AA-minus from AA-plus.
The rating outlook remains negative on the ULTGO and LTGO ratings.
The outlook is revised to stable on the MTF rating.
The LTGO, building authority and downtown development bonds all carry the city's full faith and credit and its ad valorem tax, subject to constitutional, charter and statutory limitations.
The MTF bonds carry a double-barrel pledge secured by the city's LTGO and the city's allocation of amounts received from the state's Transportation Fund, which funds are generated from statewide vehicle license and motor fuel taxes.
The downgrade reflects a decline in the city's overall financial flexibility and continued challenges in restoring structural balance in the face of tax base deterioration, state revenue declines, own-source revenue limitations, and forward spending pressures.
The rating differential on the LTGO bonds also reflects the decline in financial flexibility and the fact that the city is levying at its statutory tax cap.
The local economy remains highly dependent on manufacturing, but is stabilized by the presence of higher education and healthcare.
Per capita wealth levels are below average and the local unemployment rate is above average.
The debt burden is modest, principal amortization is rapid, and future debt requirements appear manageable. The city's pension plan is over-funded, but its other post-employment benefit (OPEB) obligation is sizable.