Apr 7, 2023 - News

Detroit nears huge financial health milestone

Illustration of the Spirit of Detroit Statue outside the Coleman A. Young Municipal Center, in Detroit, with lines radiating from it.

Illustration: Brendan Lynch/Axios

Moody's Investors Service upgraded Detroit's bond rating again, getting the city one step closer to a major milestone in its financial recovery after falling into bankruptcy a decade ago.

Why it matters: It brings Detroit just one letter away from earning an investment grade rating for the first time since 2009.

Context: Moody's ratings depict the quality of a government's debt — or how likely the city is to be able to repay that debt without defaulting on it.

  • A lower rating means buying the city's bonds is riskier for investors, while a higher rating means buying them is becoming a better bet. Higher also means it costs less for the city to borrow money in the first place.
  • The city's bonds have been considered beneath investment grade — a status for much risker "junk" bonds — so bringing them back up to investment grade status is a big deal.

State of play: Although Detroit is soon facing the end of a decade-long break from hefty pension payments, the city has balanced its finances well and is prepared to manage the new weight on its budget — at least for the first several years, Moody's analysts write.

  • The city is making improvements through its $827 million in federal COVID-19 recovery aid and continues adding to its reserves, per Moody's.
  • But it also faces rising costs and is far from immune to an economic downturn, with high poverty rates and reliance on the automotive industry.

Between the lines: The fiscal transparency nonprofit Truth in Accounting recently gave Detroit a C grade on an A-F scale of cities' fiscal health for the breadth of its debt due to bad decisions from previous elected officials.

What they're saying: "Going from bankruptcy and state financial oversight to being within striking distance of an investment grade rating in less than 10 years is a tremendous accomplishment," Mayor Mike Duggan said in a news release.

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