CHICAGO — Fitch Ratings downgraded Michigan’s largest county to BBB-plus from A-minus, warning that it will take years for it to overcome deficits amid a weak economy.
Wayne County is home to Detroit, and the downgrade comes less than a week after the state announced it was launching a preliminary investigation into the city’s finances, often a prelude to a state takeover.
The county has $442.1 million of outstanding general obligation limited-tax bonds, $240 million of bonds issued by the Wayne County Building Authority, and $68 million of bonds issued by the Detroit-Wayne County Stadium Authority.
Payments are made from different revenue sources, but all the debt carries the county’s GO limited-tax pledge. Wayne has no outstanding GO unlimited-tax debt.
“The main problem is accumulated fund deficits both in the general fund and also in other funds outside of the general fund,” said Arlene Bohner, the Fitch analyst who covers the county.
She noted that the county has crafted a draft deficit elimination plan, as required by the state, but that under that plan, it will take five or six years to begin rebuilding reserves. “We felt that having accumulated deficits in those funds for that length of time was inconsistent with the A-minus rating,” she said.
Moody’s Investors Service rates the county A3 with a negative outlook. Standard & Poor’s gives it an A-minus.
Wayne already imposes the maximum allowable property tax rate, so it can’t raise the tax rate to generate additional revenue. Given that, and the continuing slide in taxable property values, the county’s GO pledge is constrained, Fitch said.
On the positive side, Fitch revised its outlook to stable from negative, noting that the county recently settled a long and costly lawsuit with the Third Circuit Court System over the court’s budget. The litigation was a key factor last year when both Fitch and Moody’s downgraded the county to the low single-A category.
The settlement sets at $87.5 million the minimum payment the county needs to make to the courts through fiscal 2015, stabilizing its costs, Bohner noted.
It also requires the county to construct a consolidated courthouse by refurbishing existing buildings or else building a new facility.
“An important part of the settlement is it gives the county’s management some more control over the spending in the area of the courts, so that is pretty key to their plan to eliminate the deficit,” Bohner said.
Wayne County’s chief financial officer, Carla Sledge, said she was disappointed in the downgrade, in part because the county has worked to address problems Fitch cited in last year’s downgrade.
“I’m not real happy about this, because I took the last report they gave us and every one of the issues they thought was a problem, we addressed it,” Sledge said.
She said the county cut expenses, raised fees, eliminated most of its juvenile justice fund deficit, and ended its fiscal year on Oct. 1 with a surplus.
The county has been working with state treasury officials on the deficit elimination plan and hopes to present it to commissioners for approval in January or February, she said.
The downgrade comes as Wayne County Executive Robert Ficano’s administration faces a federal investigation that appears to center around pay-to-play allegations. The Federal Bureau of Investigation this week subpoenaed records associated with the county’s purchase and renovation of a new headquarters in downtown Detroit, most of which was financed with tax-exempt bonds, according to local media reports.