A little more than a year after Michigan declared Pontiac to be in a state of fiscal emergency the city has won a series of rating upgrades from Fitch Ratings.
The state took over Pontiac’s finances in March 2009, appointing an emergency financial manager with the authority to negotiate labor contracts, hire and fire, and implement cuts.
Fitch upgraded roughly $8 million of outstanding general obligation bonds to B from CCC and $4 million of tax increment financing authority bonds to B from CCC. Another $2.4 million of water revenue bonds were upgraded to B from B-minus and $3.5 million of sewer revenue bonds upgraded to B from B-minus. Fitch revised the outlook on all the debt to stable from negative.
“The upgrade and stable outlook reflect the oversight of the state-appointed emergency financial manager and the resulting improvement in financial management in addition to the successful implementation of personnel cost savings,” Fitch analyst Melanie Shaker wrote. “The quality of disclosure and the responsiveness of the management team have improved markedly with the EFM and gains have been made in adjusting spending to operating revenues.”
Pontiac has a moderate debt burden and its pension funds are overfunded. Labor concessions and spending cuts will be key to continuing the city’s improvement, Fitch said. Shaker warned that the city’s general fund remains weak, with an accumulated deficit of nearly 13% of spending. Unemployment remains high.
Pontiac is likely to face challenges tied to reduced employment at General Motors Corp., Pontiac’s largest employer and taxpayer. GM is also appealing its property tax assessments in Pontiac, which could lead to reduced property tax revenue.