Moody’s Likes This Budget

Michigan Gov. Rick Snyder’s proposed $48.2 billion fiscal 2013 budget, unveiled last week, is a credit positive for local governments and school districts, Moody’s Investors Service said last week.

The budget includes the first increase in local government and school aid funding in 10 years, Moody’s said.

The spending plan would boost aid to school districts through a number of measures, including increasing incentive payments for meeting certain thresholds and providing stable per-pupil funding, analysts said.

Revenue payments to cities, villages, and townships would also increase. Snyder proposed increasing the so-called constitutional revenue sharing aid by 2% and increasing incentive-based payments.

Community colleges would see a 3% increase in funding and support for retiree health care costs, Moody’s said.

“The proposed budget is a key turning point for the state,” Moody’s analyst David Levett wrote in a special commentary featured in the rating agency’s weekly U.S. public finance credit outlook.

“After years of declining revenue and reduced support to local governments, the state projects its revenues to grow over the next few years,” he wrote. “This biennial budget signals that the state is better positioned to provide more stable revenues for its local governments going forward.”

Separately from the budget, a new law could also strengthen the state’s troubled school districts, according to Moody’s.

The law, which Snyder signed into law Feb. 7, strengthens the state aid pledge backing notes or bonds issued by fiscally troubled school districts by having the Michigan Finance Authority make direct state aid payments to the bond trustee.

The laws are expected to mean that the state aid-backed bonds would be protected in case of bankruptcy.

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