Fitch Ratings last week affirmed the CCC rating but revised the outlook to positive from stable on Pontiac, a Detroit suburb that is under emergency financial management.

Fitch said the positive outlook reflects changes made by the emergency financial managers that have improved the city’s fiscal position. Analysts note that Pontiac continues to face significant pressure from declining revenues.

Another problem could come from a current challenge to Michigan’s new law that broadened the power of emergency financial managers.

“A material change to the EFM’s authority could raise credit concerns,” Fitch analyst James Mann said in a recent report.

The city’s current emergency manager is Louis “Bud” Schimmel, a Michigan public finance veteran who took over after Michael Stampfler resigned last September. Schimmel is the third emergency manager to take over since the state declared Pontiac to be in a state of fiscal emergency in March 2009.

“Fitch recognizes that the state-appointed EFM has de-politicized financial operations and has privatized and-or regionalized most of the city’s municipal functions, but remains cautiously optimistic, given the significant turnover in this position over the last three years,” Mann wrote.

Before leaving, Stampfler outsourced police responsibilities to Oakland County. Schimmel has since privatized several more government functions.

The city last year achieved its first general fund surplus since fiscal 2002, but achieved it mostly by omitting a $4 million pension and benefits payment and a $1.9 million tax refund to General Motors Corp., Fitch noted.

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