CHICAGO - Fitch Ratings Tuesday upgraded Michigan to AA from AA-minus and Standard & Poor’s boosted its outlook to positive, with both agencies saying the state’s economy and fiscal position are on the rebound.
The news completes a trifecta of good ratings news for Michigan, as last week Moody’s Investors Service lifted its outlook to positive from stable, affirming its Aa2 rating on the state’s general obligation bonds.
Fitch revised its outlook to stable from positive at the new higher rating. The agency had raised its outlook to positive in July 2011.
S&P affirmed its AA-minus rating on the state while raising its outlook to positive from stable.
The rating actions come a few weeks after Gov. Rick Snyder, budget director John Nixon, and state Treasurer Andy Dillon visited the three major ratings agencies in New York to tout the state’s progress ahead of a $200 million school loan GO bond sale. Snyder has made ratings upgrades a priority of his administration, saying he wants to try to regain the triple-A ratings the state enjoyed before its downward spiral began in 2000.
Standard & Poor’s affirmed its AA-minus and raised the outlook to positive from stable.
“Michigan is the comeback state and our progress is being recognized,” Snyder said in a statement. “Within a week, we have seen positive movement from all three Wall Street rating agencies. That sends a clear message that Michigan is on the right track and moving forward.”
Fitch said the state’s economy is strengthening and that it has made progress in rebuilding its fiscal position since 2010.
“The upgrade of Michigan’s GO bond rating to AA reflects the state’s solid economic and fiscal recovery over the last two years,” Fitch analyst Douglas Offerman said in the upgrade report.
“After a decade of persistent economic weakness, the result of manufacturing cyclicality and the near-collapse of the domestic auto sector, the state’s economy is growing again” the report said. “The state has used the economic and revenue momentum of the last two fiscal years to stabilize state finances, with structurally balanced budgets, annual surpluses, higher liquidity and sizable deposits to the budget stabilization fund.”
The positive rating actions come despite the troubled position of many of the state’s local governments. Chief among them is Detroit, Michigan’s largest city, which is now under emergency management and closer than ever to a Chapter 9 filing. Moody’s said last week that the state should be able to withstand the pressure from the local governments.
Fitch’s Offerman said the state’s credit has strengthened enough over the last few years that an upgrade was warranted despite the problems of the Motor City.
“It’s certainly something that we discussed in great detail, but the state’s fiscal situation overall is significantly better than it’s been in a long time, and it’s hard not to reflect that given the choices they’re making in the state capital to keep the state on a fiscally sound path,” Offerman said in a telephone interview.
He added that Detroit was a topic at the meeting with Michigan officials. “The state has said it does not have an obligation for those troubled local governments,” he said.
Michigan’s unemployment rate, at 8.8% as of February 2013, is “falling rapidly” though it still remains above the 7.7% national rate, Fitch said.
Revenues began to stabilize in 2010 as the economy improved, and the state has not had to borrow for cash-flow purposes since 2011, Fitch noted.
Michigan’s debt and retiree obligations remain manageable, Fitch said. The state’s net tax-supported debt totals $8 billion, with 48% of the GO debt scheduled to be retired over the next five years and 86% over the next 10 years, according to Fitch. The two pension funds each have funded ratios of about 65%, and the state employee fund has an unfunded pension liability of $5.4 billion.
The state has just under $2 billion of outstanding GO bonds.