CHICAGO -- Standard & Poor's Corp. affirmed a BBB rating on $286 million of Detroit's outstanding general obligation debt yesterday, but continued to give the rating a negative outlook.
The agency said the rating reflects the city's weak economic base, "significantly deteriorated" financial position, ongoing budget problems, and "structurally imbalanced" general fund operations.
Still, Standard & Poor's pointed out the city has taken steps to stem deterioration and "lay the foundation for financial stability."
On Tuesday the Detroit City Council completed work on a $2.12 billion budget for fiscal 1993, which begins July 1. That budget contains cost-saving measures, such as an employee pay freeze and rollback and the issuance of new and refunded debt to eliminate a $248 million deficit over fiscal 1992 and 1993.
Standard & Poor's warned, however, that a number of measures included in the budget must be realized for Detroit to maintain its rating.
Those include obtaining necessary concessions from unionized city employees, getting voter approval in August to restructure $126 million of outstanding limited tax bonds as unlimited tax GO debt, decreasing contributions to city pension funds by increasing earning assumptions of the funds, and holding the line on other expenses.
"If those things all pan out, then [Detroit] is doing what we felt they had to do," said Steve Murphy, a vice president at Standard & Poor's.
City officials did not return phone calls.
The agency also commented that "recent reports of impending state oversight of the city's finances and possible city bankruptcy appear baseless and alarmist."
Earlier this week, Michigan Treasurer Doug Roberts said if Detroit does not address its "long-term structural problems" the city could ultimately face bankruptcy. His concerns were echoed by some state lawmakers. However, Mr. Roberts expressed optimism that Detroit would make the necessary changes to avoid a financial crisis.
Mr. Roberts and other members of Michigan's Administrative Board will soon be asked to approve between $103 million to $110 million of five-year deficit bonds for Detroit.
Detroit's BBB rating with Standard & Poor's has had a negative outlook since September 1990.
Paul Devine, a vice president and manager of the Great Lakes region at Moody's Investors Service, said the agency still has Detroit's Baa rating under review.
