CHICAGO - Standard & Poor's Tuesday revised its outlook on Michigan to stable from positive amid softening revenues.
The ratings action comes ahead of the state's sale of $86 million of general obligation bonds.
The rating remains AA-minus.
Analysts cited several reasons for the move, one of which is the state's recent decision to draw $195 million from its rainy-day fund for bankrupt Detroit.
The move is a blow to Gov. Rick Snyder and top budget officials who have repeatedly said one of their top priorities is to regain the state's prized triple-A rating.
"The outlook revision reflects recent softening in projected fiscal 2014 revenues, expected slow economic growth, and anticipated declines in general fund and budget stabilization reserve fund balances in fiscal 2014 because of weak April income tax receipts, budgeted general fund drawdowns, and a lower-than-expected balance in the state's budget stabilization reserve fund," analyst David Hitchcock said in a press release.
Michigan's strengths include an improved fund balance in 2013, strong cash position, and good budget management.
But "the cyclical nature of the state economy, with its exposure to vehicle manufacturing and consequent cyclical financial pressures offset these strengths," Hitchcock said. He also cited pending litigation against recent state pension reforms.
"The state budget stabilization fund appropriation to the Detroit bankruptcy settlement also raises questions as to potential future state contributions to other distressed localities and school districts, and we will monitor the uniqueness of this event," the firm said.
Also Tuesday, Fitch Ratings affirmed its AA rating on the state's general obligation bonds and its stable outlook.
