CHICAGO — Moody’s Investors Service Friday downgraded Wayne County by two notches, the second time this month Michigan’s largest county has been hit by a downgrade. Wayne is home to Detroit, and Moody’s cited the city’s fiscal problems as a main reason for the downgrade.
Moody’s cut its rating to Baa2 from A3 on the county’s limited-tax general obligation debt. The outlook is stable. Two weeks ago, Fitch Ratings cut the county to BBB-plus from A-minus. Standard & Poor’s rates it A-minus. Wayne has $445 million of outstanding limited-tax GOs and no outstanding unlimited-tax GOs.
With 1.8 million residents, Wayne is Michigan’s most populous county and enjoys a sizable tax base and moderate debt burden, Moody’s said. But the county suffers from chronic fund deficits, and its current deficit elimination plan does not project erasing those gaps until the end of fiscal 2015. Like Fitch, Moody’s warned it could take several years for Wayne County to do so and begin to build reserves.
Also driving the downgrade is reliance on tax anticipation notes for operating cash flow, analysts said. Wayne has issued Tans every year since 2009 to supplement cash flow. The county’s next sale of $100 million of notes is scheduled for January.
Moody’s also warned that the county’s revenue projections after 2012 are “somewhat aggressive.” The current deficit elimination plan predicts that taxable valuations will remain steady in 2012.
“Given the current declining trend in the county’s tax base, as well as persistent economic challenges throughout Detroit and southeast Michigan, this projection may not prove accurate,” Moody’s analyst Matthew Butler wrote in the report.
The longer property values take to rebound, the longer it could take the county to overcome its deficits. Wayne already imposes the maximum allowable property tax rate.
In a recent interview, chief financial officer Carla Sledge said Wayne County has cut expenses, eliminated most of its juvenile justice fund deficit, and ended its fiscal year on Oct. 1 with a surplus.
