CHICAGO - Credit analysts say they are closely monitoring the situation in Pontiac, Mich., as officials try to fend off an attempt by the state to take over the beleaguered city's finances.
Two weeks after Michigan Gov. Jennifer Granholm declared Pontiac to be in a state of fiscal emergency, Moody's Investors Service issued a release this week saying it was monitoring the city for any impact on its credit, which is already in junk-bond territory.
Fitch Ratings at the end of January downgraded pieces of Pontiac's debt further into junk territory, and put all of its debt on negative watch. Standard & Poor's has not taken a rating action on the city since 2006.
Located in southeastern Michigan between Detroit and Flint, Pontiac has been hard hit by the loss of manufacturing jobs and is facing a 20% unemployment rate. Its largest employer and taxpayer is General Motors Corp., which has been shedding jobs for years. The city also faces a growing budget deficit and declining revenues.
Granholm said she moved to take over the city's finances after officials there showed a "lack of urgency" in dealing with their fiscal problems. Last week Pontiac officials met with the state's Financial Management Review Team in a closed-door meeting to try to avoid the takeover.
Officials announced a series of measures after the meeting, including an unprecedented announcement that Pontiac's school district would lay off all its 700 employees at the end of the school year as part of a massive restructuring.
The state's fiscal review team is expected to announce soon whether to move forward with Granholm's recommendation to take over the city's finances, said state treasury spokesman Caleb Buhs.
Moody's report said its analysts were closely monitoring the situation to assess any possible credit impact. Its last rating action was in April 2008 when it downgraded to Ba3 the underlying rating on the Pontiac Building Authority's outstanding debt, the only debt rated by Moody's. The downgrade reflected the city's financial and economic challenges, including significant growing deficit balances and high unemployment, analysts said.
At the end of January Fitch took a number of rating actions on Pontiac's debt. As well as putting all the city's debt on negative watch, Fitch downgraded to CCC from B-minus its rating on the Building Authority debt. It affirmed its CCC rating on $5.1 million of the city's Tax Increment Finance Authority debt, while downgrading another $5 million of the TIFA debt to B from BB-minus.
Standard & Poor's last rating action was in 2006, when it assigned an A-plus rating with a stable outlook to $28 million of fiscal stabilization bonds issued to eliminate a $32 million deficit.
Since then the deficit has grown again and by the end of 2008 was estimated to total $12 million, according to the state. Pontiac's budget totals roughly $52 million.
