Fitch Ratings last week downgraded the town of Port Huron in eastern Michigan to A-plus from AA-minus, affecting $24 million of general obligation bonds.
The downgrade comes amid the city’s weak economy, chronically high unemployment rate and above-average debt load, analysts said. “Substantial borrowing for combined sewer overflows has driven debt to well above average levels,” Fitch analyst Arlene Bohner wrote in a release on the downgrade.
Port Huron, located along the Canadian border, benefits from a strong international trade industry as a major commercial port of entry into the U.S.
Its coffers are also boosted by a local income tax; the city is one of only 22 in Michigan that levies one.
Strong spending controls have led to annual operating surpluses and ample general fund reserves, Fitch said.
But more than 20% of the town’s residents are unemployed, and nearly a quarter are at or below the federal poverty rate. One of its biggest problems is its high debt load, Fitch said.
The town has borrowed to finance a large water and sewer infrastructure project, leading to a debt load of 10.3% on a per capita basis. The city expects to borrow another $9 million in 2013 for the project.
Most of the water and sewer bonds carry Port Huron’s general obligation pledge. The debt is not fully self-supported and the city for the last two years has had to shift money into the water and wastewater funds.