CHICAGO — Moody's Investors Service Thursday boosted its outlook on Michigan to positive from stable, saying the state is rebuilding its balance sheet and should be able to withstand pressure from troubled local governments.
Moody's maintains a Aa2 rating on the state's general obligation bonds.
The move comes a week after Gov. Rick Snyder and budget director John Nixon visited the ratings agencies in New York. Snyder has made ratings upgrades a key priority, saying he wants to recapture the prized triple-A ratings the state once enjoyed before suffering through a long recession that began in 2000.
With Moody's announcement, two of the three major ratings agencies now have Michigan on a positive outlook.
Fitch Ratings raised the outlook on its AA-minus rating to positive from stable in July 2011.
"Revision of the state's outlook to positive from stable reflects Michigan's progress in rebuilding financial reserves and running structurally balanced budgets, which signals an improving credit trajectory," Moody's said in a release on an upcoming $200 million school fund bond sale.
"The dramatic downsizing of the Detroit-based US auto industry, culminating in 2009, eroded Michigan's economic base and depleted its finances," analysts said. "While many local governments in Michigan are financially troubled, this exposure is unlikely to impose unmanageable, direct financial burdens on the state."
But challenges linger, the ratings agency warned. Chief among those are exposure to struggling local governments and a declining population and uncertain unemployment rate due to the automobile industry.
Moody's could upgrade the state if it continues its trend of building reserves and maintaining a structural balance and its economy remains in line with the rest of the nations, the report said.
Standard & Poor's rates Michigan's $1.9 billion of GO bonds AA-minus with a stable outlook.