CHICAGO -- Expressing "guarded optimism," Standard & Poor's Corp. yesterday affirmed the BBB rating on $271 million of Detroit's outstanding general obligation debt and $24 million of building authority bonds.
However, the agency kept a negative outlook for the rating. citing the yet unknown outcome of binding arbitration between the city and its police and fire unions, and the necessity to see more of a track record of balanced operations.
"The city continues to make some inroads trying to manage in a weak economy and with natural expenditure growth pressures through tight fiscal management," said Joe O'Keefe, a director at Standard & Poor's.
The rating agency pointed out that Detroit has been able to win a 10% wage concession from many of its employee unions, has successfully negotiated a reduction of its contributions to two city pension funds, and shows a balanced budget in the current year.
Steve Murphy, a director at Standard & Poor's, said while the city has taken some "significant actions," the rating agency wants to "see a track record of balanced budgets" in the future.
The city has a $1.9 billion budget for fiscal 1994, which began July 1.
Bella Marshall, Detroit's finance director, yesterday said she was pleased with Standard & Poor's evaluation of the city's creditworthiness.
"It shows we are still in control of our fiscal state" she said. "There are things we can do to show Detroit enjoys a stable financial base and hopefully we'll move forward from there."
A year ago, Detroit lost its investment grade rating with Moody's Investors Service, which downgraded the rating on $272 million of the city's outstanding debt at that time to Ba1 from Baa.
Moody's cited "weak credit fundamentals. which detract from long-term credit quality, despite the city's history of continued efforts to maintain control over its budgetary operations."
J. Chester Johnson, president of Government Finance Associates Inc., Detroit's financial adviser, said the affirmation by Standard & Poor's "reflects the reality of management capability that the city has repeatedly demonstrated, which warrants the city to be in the investment grade category."
Marshall said the administration has not discussed seeking a third rating from Fitch Investors Service Inc., now that the city has a split rating with the other two agencies.
Detroit may sell about $27 million of GO bonds for general purposes in August.
The city is also preparing the refinancing of $170 million of revenue bonds sold in 1985 for the city's Cobo Hall convention center.
That issue has been delayed because of litigation over action taken after a bill that would permit the immediate refinancing was passed by the Michigan Legislature earlier this year, but removed from Gov. John Engler's desk by Senate Republicans.
Detroit officials have estimated the refinancing would give the city about $17 million in present value savings that they plan to use to pay debt service on $20 million of bonds sold for the convention center in 1988.
A hearing on the litigation filed by Senate Republicans against the Michigan attorney general and secretary of state is scheduled for Thursday. In the meantime, a bill permitting the refinancing, but not until April 1, 1994, was passed by the Legislature earlier this month and signed into law by the governor on July 16.
City officials have said they could proceed immediately with the refinancing as long as the Michigan treasurer's office approves the deal. Nick Khouri, chief deputy treasurer, did not return phone calls on the status of that approval process.
Detroit is also preparing to ask voters to restructure $118 million of limited tax GO bonds into unlimited tax GOs to save the city's general fund $12.6 million a year. The measure, which voters rejected last year, will appear on a Sept. 14 ballot.
The ballot will also contain a large field of candidates vying to take the place of Mayor Coleman Young, who announced on June 22 that he will not run for a sixth term in office. Twenty-five candidates filed petitions in June to appear on that primary ballot. The top two vote getters will then face off in a general election on Nov. 2.