CHICAGO — Moody's Investors Service Thursday downgraded Wayne County, Mich., which includes Detroit, to Baa3, only one step above junk territory.
The rating agency kept the outlook negative.
Wayne, which is Michigan's most populous county, has $726 million of debt.
The one-notch downgrade, from Baa2, reflects chronic deterioration in the county's finances, Moody's said.
"The downgrade to Baa3 reflects sustained pressure on the county's financial operations due to continued depreciation of the tax base coupled with lack of sufficient control over annual spending," analysts said in the downgrade report.
The county's general fund deficit has deepened since 2010.
"While a portion of the growing deficit is attributed to the general fund's correction of deficits in other county funds, the significantly negative financial position of the county's primary operating fund considerably limits management's flexibility to address unforeseen spending pressures," Moody's said. Wayne's large tax base has depreciated over the last several years amid economic challenges and a high unemployment rate.
County management has been aggressive about cutting costs, but could find it difficult to address the deficit in a timely manner, Moody's said.
The county has been hit with a number of downgrades over the past two years.
Standard & Poor's lowered its rating on the county in May, dropping it to BBB from BBB-plus, citing the county's chronic structural imbalance.
S&P has a stable outlook on the county.
In June, the county halted construction on a controversial, $200 million bond-financed jail in downtown Detroit. The county issued $200 million of recovery zone economic development project bonds in late 2010 to finance the project. Wayne operates three jails and had hoped to save money by consolidating services and costs at one facility.
But the county in June ordered a 60-day work stoppage amid climbing costs, now projected at $400 million over the original $220 million estimate.
Dan Gilbert, the founder of Quicken Loans, is reportedly among the developers considering buying the site from the county.
The Wayne County Commission has set a meeting for Aug. 7 to discuss the project.