CHICAGO - Fitch Ratings yesterday downgraded Lansing, Mich.'s outstanding general obligation debt to AA from AA-plus, citing the state capital's ongoing economic weakness, much of which stems from the shrinking U.S. automobile industry.
At the same time Fitch withdrew its ratings on a number of GO and sewer revenue bond issues for the city. The city asked Fitch to withdraw all its ratings on its debt due to the cost of maintaining ratings from all three rating agencies, according to the city's finance director.
Fitch maintained its stable outlook at the lower rating.
The downgrade comes as Lansing, like other Rust Belt cities in the Midwest, continue to struggle with rising unemployment as the U.S. automobile industry closes plants and lays off workers. General Motors Corp. is the third largest employer in the Lansing area, behind state government and Michigan State University. GM is also the city's top taxpayer.
Lansing also faces challenges from a weak housing market and declining revenues.
"The downgrade to AA from AA-plus reflects the weakening of the local economy," Fitch analyst Mark Campo wrote in a release on the downgrade. "Most recently, the contraction of the automotive industry in the area as well as the effects of the regional and national recession have pushed the city's unemployment to double-digit levels."
In early 2008 Lansing's unemployment rate was 6.4%, compared to 7.1% in the state of Michigan.
Moody's Investors Service rates the city's GO debt Aa3. Standard & Poor's rates it AA-plus with a stable outlook.
Lansing officials are expected to release a final 2010 budget by March 23, according to city officials. The new budget will likely include a number of spending cuts to deal with a deficit from declining revenues, said local reports. The city's fiscal year begins July 1. The city is currently operating under a $112 million budget.
Fitch said it expected the city's fiscal managers to achieve a balanced budget this year. "Financial management is strong and continues to demonstrate a commitment to maintaining reserve levels," Campo wrote. "Nevertheless, financial pressures will likely remain from ongoing economic conditions."
On the bright side, the city has seen a number of new investment and development projects in recent years, Campo said.
Fitch withdrew its ratings on roughly $7.5 million of unlimited- and limited-tax GOs and certificates of participation. It also withdrew its rating on $5.2 million of outstanding sewage disposal system revenue and refunding bonds, while affirming the AA-minus rating on that debt.
Lansing is in the midst of executing a large-scale capital plan to bring its aging combined sewer system overflow system up to environmental standards. The remaining cost of the city's plan is $324 million and is expected to be financed through 2019, according to bond documents.
"Our financial consultant recommended we have Fitch withdraw going forward as we're not sure we need three ratings, and there's an expense behind that," said Lansing finance director Jerry Ambrose.
Lansing's long-term debt totaled $265.3 million as of June 30, 2007, according to bond documents.
Mayor Virg Bernero recently announced the city would pursue a $16.5 million capital plan for road and street repairs, some of which would be funded with bonds.