Fitch Ratings last week stripped the Detroit suburb of Taylor of its investment-grade rating and warned of further action by assigning a negative outlook.
The four-notch downgrade to BB from BBB-plus affects $12.5 million of limited-tax general obligation bonds, $1.4 million of downtown development authority bonds, and $16.6 million of brownfield development authority bonds.
Fitch also dropped Taylor’s implied unlimited-tax GO rating by three notches to BB-plus from BBB-plus.
The negative credit action comes after three years of deficits, which have led to depleted general-fund reserves and an anticipated deficit at the end of fiscal 2012, analysts said. Property taxes, which make up more than half of the city’s general fund, have fallen 25% since 2009.
“As Taylor is at its maximum property tax rate and state shared revenues are likely to remain flat, the return to positive operations will be driven by expenditure cuts and labor contract savings,” Fitch said in its downgrade report.
The city faces another downgrade if officials are unable to stabilize finances and stop recurring deficits, analysts warned.