Standard & Poor's Ratings Services said it has revised its outlook on Michigan's general obligation bonds and appropriation-backed debt outstanding to positive from stable.
At the same time, Standard & Poor's has affirmed its AA-minus rating on the state's GO debt and its A-plus rating on the state's appropriation-backed debt.
Standard & Poor's has also assigned its AA-minus rating to Michigan's series 2015A GO bonds, and A-plus rating to the Michigan State Building Authority's (SBA) 2015 revenue and revenue refunding bonds, series I (facilities program).
The outlook on both ratings is positive. The SBA bonds are secured by a portfolio of lease rental payments pledged under a 2003 master indenture.
"The positive outlook reflects current structural budget balance and a new commitment to rebuild budget stabilization fund balances, as reflected in the enacted fiscal 2016 budget," said Standard & Poor's credit analyst David Hitchcock. "This follows a modest reserve drawdown in fiscal 2014 to assist in the Detroit bankruptcy settlement."
It now views the 2014 drawdown as a one-time occurrence. Building reserves in good economic times, such as now, are of particular importance to state credit quality due to the cyclical nature of the state's economy and finances.
Despite additions to the budget stabilization fund (BSF) that are budgeted in 2015 and 2016, the agency still sees balances at only adequate levels.
Continued state commitment to building reserves could result in an upgrade over the two-year outlook horizon. Mid-fiscal 2016 shortfalls that result in significant use of the reserve, or unexpected use of the BSF to help additional distressed local credits, such as Wayne County or Detroit Public Schools, could cause it to return the outlook to stable.
