Fitch upgrades Michigan credit rating to a ‘positive outlook’
(The Center Square) – Michigan’s improving economy and multi-billion-dollar revenue surplus have prompted Fitch Ratings to improve the state’s general obligation bonds AA credit rating from a “stable” to a “positive outlook.”
That’s similar to raising an individual’s credit score, meaning the state can borrow money more cheaply. Michigan’s most recent revenue projections flipped nearly a $3 billion deficit to a $3.5 billion surplus.
Fitch formally rated $603 million of limited obligation revenue bonds, series 2021A, issued through the Michigan Strategic Fund for the Flint Water Advocacy Fund.
Fitch and Moody’s Investor Services analyze a state’s economy and finances to determine a credit rating for borrowing money. Since bonds are a state appropriation, the rating agencies rate the Michigan Strategic Fund bonds one notch below the credit ratings of the state of Michigan. Fitch rates the bonds AA- by Fitch while Moody ranks it Aa2.
The bond sale revenue will be loaned to the Flint Water Advocacy Fund to transfer $600 million to the Flint Water Crisis Qualified Settlement Fund, following a settlement agreement between Michigan and the plaintiffs.
Fitch notes the incoming billions artificially propped up revenues that never collapsed, thanks to spending cuts and federal stimulus. Michigan pocketed nearly $11 billion through the American Rescue Plan Act and almost $4 million through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
“Nearly $2 billion of spending reductions made by the governor and legislature in mid-2020 in response to a $2.4 billion revenue shortfall forecast in May 2020 resulted in Michigan over-correcting for a revenue collapse that never actually materialized, with a dramatic expansion in fiscal reserves being one unintended consequence,” Fitch wrote.
Michigan withdrew $350 million from its rainy day fund, but that fund still stands at $829 million.
“This rating is a sign of confidence in Michigan’s hardworking people, close-knit communities, and innovative small businesses,” Gov. Gretchen Whitmer said in a statement. “Our early, decisive efforts to respond to the COVID-19 pandemic are paying dividends as we emerge from the pandemic stronger than ever, poised for an economic jumpstart,” she said.
“With billions in federal stimulus and a $3.5 billion state budget surplus, we must continue our forward momentum and channel it into raising wages, invest in small businesses, and uplift families,” Whitmer continued. “I look forward to engaging the legislature, local communities and Michiganders as we continue thinking through the best ways to turbocharge our economy and make a real difference in people’s lives.”
Fitch believes the state is well-positioned to recover from the COVID-19 pandemic.
“I am delighted how Wall Street has recognized the hard work and effort taken to react to the impacts of COVID-19 here in Michigan,” State Treasurer Rachael Eubanks said in a statement. “The credit rating agencies have again displayed confidence in Michigan’s economic and financial health by affirming their credit ratings – with Fitch even boosting their outlook – showing investors that our state is a great investment.”
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