CHICAGO - Like the imaginary Scottish village of Brigadoon, Flint, Mich., seems suspended in an earlier time.
Unfortunately for Flint, the earlier time is the 1980s.
While many other Midwestern Rust Belt cities have diversified their economies and are prosperous again, Flint still suffers from almost 10% unemployment. Changes in the auto industry, which still represents a third of the city's tax base, have not been kind to the town's economy.
But Flint's latest problem is the fault of internal management, not external problems, according to Standard & Poor's analysts. Last Friday, the agency withdrew the already borderline investment-grade rating of BBB on Flint's $10.95 million of limited-tax general obligation bonds due to lack of information.
According to Standard & Poor's analysts, the city failed to provide the rating agency with its 1999 audit and additional requested information.
But Flint's finance director, Matthew Grady 3d, said he had been in touch by phone and in writing with Standard & Poor's, and had explained that the audit was late due to a combination of difficult circumstances. He expects the audit to be ready by June 30.
"I'm disappointed," Grady said. "I still see Flint as a good investment. We're a city in transit at this point."
"We rate other cities that have economic stress and they've been able to get their audit to us on time," said agency analyst Sandra Narine. "This is sort of internal with Flint, and, I think, political."
Standard & Poor's withdrew a rating on one other issue this year for lack of timely information -- the Jefferson County Board of Education in Alabama, Narine said.
"Our research folks make every effort to get the information," she said. "We do a couple of letters, phone calls, and faxes until we get a human voice. There's only so much we can do."
"They've been giving us estimates, projections, 'guesstimates,' but nothing hard and concrete and we're almost through the next fiscal year," said Kenneth Gear, a Standard & Poor's analyst. "It's bordering on the ridiculous."
David Littmann, chief economist for Comerica Inc. in Detroit, said that the rating withdrawal will dissuade investors "under the prudent-man rule or any other rule of investment." The prudent-man rule is that a security needs to be investment grade.
"The liability of being sued is too great for an investment company to recommend or make those investments for clients," Littmann explained. "The lack of information in a state where the sunshine rules apply is proof enough that investment houses should steer clear of the bonds."
"In good times, when across the nation the coffers of state and local governments have never been more full, with $67 billion of surplus, the non-rating is a highly unusual and unfortunate circumstance," he added.
Standard & Poor's had downgraded Flint from BBB-plus to BBB with a negative outlook in February, warning that a further downgrade was possible.
A month earlier, Moody's Investors Service placed the city on its watch list for possible downgrade. Moody's rates the city's outstanding unlimited-tax GOs Baa2, its limited-tax bonds Baa3, and its tax increment financing bonds Baa3. Fitch IBCA Inc. rates the unlimited-tax GOs BBB-plus.
Both rating agencies cited the city's low wealth and income levels and declining tax base. Flint's economy has historically revolved around the fortunes of General Motors Corp., which has reduced its employees over the past decade due to outsourcing and loss of market share. In the most recent example, the company closed the Flint's Buick City assembly plant in July 1999, resulting in the loss of 2,900 jobs.
Grady said the audit was late because of the "layering effect" of three difficult situations the city has faced in the past 7 years. The first was the settlement with GM lowering the amount of tax the company has to pay the city. The second was a new rule that capped the amount of property tax that can be collected. The third is the introduction of untaxed renaissance zones.
The combination of the changes in tax revenues plus the problem of distributing taxes to the schools and the county have made the city's budget process complex, Grady said. He noted that preparing the city for expected year 2000 computer problems also occupied staff time.
Grady also is trying to convince the City Council to agree to a "reclassification" of $4.6 million of expenses in the 1999 budget as a result of Public Act 54, which allows cities to distribute dollars out of major street funds and place them in local street funds. The reclassification would reduce demands on the general fund, Grady explained.
Grady was the city's budget director until April of last year, when he took on the additional job of finance director. He said the city is working aggressively to "rethink the way it does business."
This includes hiring additional outside help, with PricewaterhouseCoopers coming in to check the administration's revenue projections.
The city is paying $275,000 to consultant Arthur Andersen for assistance with revenue enhancement, cost reduction, and economic development and performance, Grady said. Flint is working with Arthur Andersen's John W. Hill Jr., who had worked for four years helping to shape the recovering of the District of Columbia as executive director of the district's financial board.
"We're taking a lot of bad press at this point of time, but we will be better as a result of the decisions that we're making," Grady said. "Unfortunately, we're going to go through difficult times to get to the better times." Grady said that Ford Motor Co. and Chrysler also had to rethink their financial strategies before things got better. "I hope the bond community understands this."
