CHICAGO — Moody's Investors Service Wednesday affirmed its Aa2 rating on Michigan, saying the state is anchored by strong fiscal management and a reviving auto industry.
Low debt and limited exposure to troubled local governments like Detroit are also strengths, the ratings firm said.
Gov. Rick Snyder has continued Michigan's long history of strong financial oversight and has recently started to rebuild reserves, analysts said. The state's strong revenue estimating process is another key asset, said Moody's.
A recovering auto industry plays an important role as well.
"The Michigan-based domestic auto industry has stabilized, thanks to federal government loans, restructuring efforts and renewed consumer demand," analyst Lisa Heller wrote in the credit report. But the massive layoffs that started in 2008 will "have lasting demographic effects on Michigan," Heller added.
Michigan has traditionally had a low pension liability because it converted its employees to a defined-contribution plan in 1997.
But in 2012 the state passed a law that authorized the state to take on the funding responsibility of local school districts. That has roughly doubled the state's net pension liability, to $28.5 billion from $14.7 billion, according to Moody's. The state's share will continue to increase, analysts warned.
The state's other post-employment benefits liability, in contrast, was trimmed by 41% as a result of 2011 reform.
The state's bond debt load is low, Moody's said. It has $2.1 billion of outstanding general obligation bonds and $3.2 billion of appropriation-backed State Building Authority bonds.
Even the fact that the state's largest city, Detroit, is bankrupt does not have much of a negative impact on the state's credit, Moody's said.
"The state's exposure to troubled local governments like Detroit is limited, analysts said. Even if Detroit's severe budgetary challenges are not addressed in the context of a bankruptcy proceeding, the state has no legal obligation to provide the city with extraordinary financial support, thus the burden of Detroit's financial situation on the state's budget is limited."
