Fitch Ratings raised Wayne County, Michigan’s rating by two notches, lifting it into the single-A category as a result of its steady fiscal recovery from past distress with eight years of operating surpluses now under its belt.
The upgrade marks the third double-notch boost for the county this year after shedding its junk status in 2018 as a restructuring, helped along by the state, allowed the county avoid bankruptcy with its general obligation ratings now all in single-A territory.
The Fitch upgrade to A from BBB-plus covers the county’s issuer rating, $13.1 million of limited tax GOs, and $21.3 million of stadium-related bonds sold through the Detroit/Wayne County Stadium Authority. The outlook is stable.
The county of 1.8 million residents, which includes Detroit, has seen “continued improvements in financial resilience, driven by consistent positive operating results following several years of financial stress following the Great Recession,” Fitch said. “The rating also reflects the county’s moderate long-term liability burden, weak revenue framework and solid spending flexibility.”
Moody’s Investors Service raised the county’s issuer rating and lease rental bonds issued for the Detroit-Wayne County Stadium to A1 from A3 last month. S&P Global Ratings lifted the rating two notches to A from BBB-plus with a stable outlook in January 2022. The county has $892 million of debt outstanding.
The county’s economy weathered the COVID-19 pandemic with stronger-than-budgeted property tax collections and state sales tax revenues in fiscal 2021 and also projected for fiscal 2022. The county saw a general fund surplus balance of about 49% of spending in 2021.
“General fund operating surpluses in each of the past eight fiscal years” reversed “a long-term trend of financial distress,” Fitch said. “Rebuilt reserves and improved inherent budget flexibility provide very strong gap-closing capacity, balanced against relatively high expected revenue volatility.”
The county’s turnaround is benefitting from Detroit’s economic upswing but general economic indices are below average overall and state rules limit the county’s legal ability to raise revenues and force it to operate under state-imposed property tax caps with a further limitation placed on levy growth of new taxes that requires ballot approval.
An increase in assessed values and state shared revenue is driving revenue growth that helped balance the fiscal 2023 budget and operational savings are expected when the bond-financed criminal justice complex opens in 2023.
The county received nearly $340 million in federal pandemic American Rescue Plan Act relief but did not tap that aid to balance the fiscal 2021, 2022, or 2023 budgets, instead using it on programs that benefit public spaces, workforce development, housing, community health programs, economic recovery and infrastructure.
In early 2015, Wayne County lost its investment-grade status from Fitch, Moody’s and S&P as it grappled with mounting deficits and pension woes. County officials warned they could run out of cash later that year.
County Executive Warren Evans said at the time a debt restructuring, state takeover and even Chapter 9 were all on the table though he believed the county could stabilize its finances. Detroit filed Chapter 9 in 2013, exiting in late 2014.
Evans asked the state to declare a financial emergency paving the way for a consent agreement that allowed Evans and the County Commission to work with the state to renegotiate contracts, improve its cash position, and reduce underfunding in the pension system, resulting in the elimination of a structural deficit.
The county shed a $132 million accumulated budget deficit and restructured $1.5 billion in pension debts paving the way for its exit from the state pact in 2016 and began to rebuild its ratings.