CHICAGO - Moody's Investors Service labeled Wayne County, Mich.'s proposed consent agreement with the state government a credit positive as efforts advance to deal with the county's fiscal emergency.
"The consent agreement enables the county to implement key cost-cutting measures and increase the state's oversight role, which are both credit positive for Wayne County," Moody's wrote in its weekly outlook commentary published Monday.
Moody's rates the county, which includes Detroit, at the speculative grade level of Ba3 with a negative outlook.
The county board voted 14-1 on Aug. 12 to approve the agreement. Wayne County Executive Warren Evans and the state treasurer still need to approve the 12-page document. Once the consent decree takes effect, Evans will have 30 days to negotiate with county unions over new labor contracts and retirement costs. After 30 days, if there is no agreement, Evans can impose conditions on the contracts.
The decree requires Wayne to continue to make timely debt payments but also allows Wayne to "enter into agreements with creditors or other persons or entities for the payment of existing debts, including the settlement of claims by the creditors."
Moody's said the agreement's provisions allowing for the renegotiation on debt repayment terms and the ability to enter a path to receivership or "neutral evaluation" could set the stage for a credit-negative default on or impairment of debt.
But analysts said offsetting that risk is "the county's progress in addressing its operating deficit and its ongoing plans to improve operations" that "minimize the likelihood of further financial deterioration that could lead to creditor impairment."
The county has acted to cut employee benefits to help eliminate a general fund deficit of $88 million which without action is projected to hit $203 million in 2019.
The consent agreement eliminates the need for employee bargaining units to agree to any new terms because the majority of Wayne County's agreements expired 20 September 2014.
"Once the immediate structural imbalance is closed, the county is considering other options, such as right-sizing operations, strategic monetization of county assets, and identifying sources to accelerate funding of its pension liability," Moody's said.
Evans has pushed for a consent agreement since June, saying it's the only option that will give the county, home to Detroit, the power it needs to deal with labor costs while leaving control largely in local hands.