Kevin Bain, Director of Strategy
Detroit Investor Relations
Detroit Investor Relations
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On September 9, the City of Detroit held its regular biannual Revenue Estimating Conference to receive an update on the Detroit economic outlook and to approve revised economic and revenue forecasts for the remainder of fiscal year 2025 and for fiscal years 2026 through 2029. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available for its annual budget and four-year financial plan.
Revenue outlook continues to improve
The Detroit Economic Outlook for 2023-2029, released Friday, predicts the City’s economy will continue to see steady growth, along with higher wages and a growing labor force. The forecast is prepared by the City of Detroit University Economic Analysis Partnership, which is a collaboration of economic researchers from the City, Wayne State University, Michigan State University, and the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan.
The City’s revenue outlook is also steadily improving as income tax growth continues along with City efforts to spur economic opportunity and growth for Detroiters. For the September Revenue Conference, participants have revised revenue estimates for the recurring General Fund moderately upward to $52.3 million for the 2024 – 2025 fiscal year based on stronger internet gaming activity, continued economic growth, and State revenue sharing increases. Sustained growth in income taxes continue to lead revenue growth in future years, in line with the Detroit economic forecast.
“The moderate steady growth projected for Detroit’s economy is reflected in the growth in our revised revenue forecast. Our focus will continue, as in prior years, to assure fiscal stability through balanced budgets that protect Detroit’s ability to fund its obligations while further improving the quality of life for Detroiters,” said Jay Rising, Chief Financial Officer, City of Detroit.
Forecast: payroll jobs, number of employed residents grow while Detroit wages outpace the State
According to the outlook, the City’s economy will continue to improve with steady growth in payroll jobs, wages and the labor force. “We expect our forecast of continued employment growth, falling unemployment, and a return to growing real incomes to translate into ongoing, if gradual, progress toward more inclusive prosperity for Detroit residents over the next five years,” said Gabriel Ehrlich, Director, University of Michigan Research Seminar in Quantitative Economics and lead author of the forecast.
The RSQE report also stated “wage growth adjusted for Detroit CPI (Consumer Price Index) inflation averages 1.0 percent per year from 2024 to 2029 at Detroit establishments, while wage growth for employed Detroiters averages 1.4 percent per year. Both of those rates outpace the real wage growth we are forecasting statewide, which averages 0.6 percent per year in that time.”
Additional highlights in the forecast:
The forecast predicted positive developments for Detroit households earning less than $55,301 noting “our analysis found that the economic fortunes of Detroit’s households improved from 2018 to 2022. The share of residents living in lower-income households edged down slightly, while the economic circumstances of Detroit’s children improved more quickly than nationwide.”
These improvements come after investments which the Duggan administration in partnership with City Council have made over the past several years, creating programs like Learn to Earn, Skills for Life and more recently JumpStart, all of which combined offer education, career and job training skills that lead to higher-wage jobs for Detroiters.
Revenue Estimating Conference Results
The Revenue Conference reported FY2025 General Fund recurring revenues projected at $1.38 billion for the current fiscal year ending June 30, 2025, up nearly $53 million (3.9%) from the previous conference estimate in February 2024. The increase is driven by our growing income and property tax base and increases in internet gaming activity. The FY2025 revenue estimates also include an additional $30.7 million of non-recurring revenues, primarily from short-term investment earnings.
General Fund recurring revenues for FY2026, which begins July 1, 2025, are forecasted at $1.41 billion, an increase of $54 million (4%) over the previous conference estimate in February 2024. The projected increase is led by income taxes and wagering taxes. The out-year forecasts for FY2027 through FY2029 show continued overall revenue growth of about 2% per year.
The City will use the estimates approved today to begin developing the City’s FY2026 Budget and FY2026 through FY2029 Four-Year Financial Plan. The conference will meet again to approve revised revenue estimates in February 2025. The voting conference principals are Jay B. Rising, the City’s Chief Financial Officer; Eric Bussis, Chief Economist, Director, Office of Revenue and Tax Analysis, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Professor Emeritus, Research Seminar in Quantitative Economics (RSQE), Department of Economics, University of Michigan.
Detroit, MI – The City of Detroit’s first bond sale under its new investment grade status was a huge success, generating strong investor demand and attracting 13 bidders. The issuance on Tuesday also marked the first deal post bankruptcy for the City using a competitive sale method, which is when bonds are awarded to the bidder that submits the lowest true interest cost bid. The City’s successful sale of $46.3 million in Unlimited Tax General Obligation (UTGO) bonds underscore confidence in Detroit's financial recovery and investment prospects.
The bond issued represents the remaining voter-approved UTGO bonds which consisted of $22.0 million for Public Lighting, $11.6 million for Transportation, $9.0 million for Recreation, and $3.7 million for Public Safety and Economic Development. Wells Fargo Bank, National Association who submitted the lowest True Interest Cost bid for the bonds received the award.
The bond sale success is a result of Detroit’s improving credit rating profile. The improved rating combined with the competitive sale method allowed the City to completely reset its credit spreads at significantly tighter levels with its 10-year bonds selling more than 100 basis points (1 full percentage point equals 100) tighter than the results of the City’s 2023 UTGO bonds that priced almost exactly a year ago. The lower credit spreads translate to lower borrowing costs and will save the City over $4 million in debt service on these bonds.
"Today marks another milestone for the City of Detroit as we successfully completed our first competitive bond issuance. This achievement highlights our commitment to fiscal responsibility and prudent financial management; seeking ways to benefit Detroit residents at the lowest possible cost The proceeds from this issuance will be instrumental in advancing key infrastructure projects and supporting essential services that enhance the quality of life for our residents. We are grateful for the confidence shown by investors, reflecting our continued progress and positive economic trajectory,” said, CFO Jay Rising.
The issuance remains aligned with the Mayor’s announcement of lowering the debt millage from 8 mills to 7 mills in 2024 and plans for an additional reduction to 6 mills in 2025.
Leveraging Detroit’s fresh investment grade rating
Earlier in 2024 the City of Detroit received rare double-double notch upgrades when Moody’s raised its rating from Ba1 to Baa2 on positive outlook in March and S&P followed with an upgrade from BB+ to BBB. These ratings returned Detroit to investment grade status for the first time since 2009 and marked an incredible financial turnaround from bankruptcy in less than ten years.
Capitalizing on the strong rating news, the City decided to sell its 2024 bond issuance through a competitive sale process. The City is very pleased by the number of bids received through the competitive sale process and the significant tightening of credit spreads that resulted in further reducing costs and creating savings for Detroit taxpayers.
A key measure of success for the bond transaction is the final credit spread on the bonds: lower credit spreads mean lower interest rates and a better deal for the City. Detroit’s rating upgrade was likely the most important factor generating strong investor demand for the 2024 Bonds and delivered the best credit spreads in recent history. The credit spreads ranged from 36-76 basis points (bps) and were 70 bps on the 10-year maturity. By comparison, the 2023 transaction had spreads of 138 to 178 basis points with a spread of 178 bps on the 10-year. The City’s 2021 bond deal had previously been the City’s lowest credit spreads thanks to a particularly strong market. Even in 2021, the spread on the 10-year was 55 bps higher than the current sale at 125 bps.
Christine Fay, Senior Manager Director at Public Resources Advisory Group, Inc, also added “rates received reflect not only the City’s improved credit ratings but also recognition of the City’s improved economic progress and trajectory,” said Fay.
Residents are the true winners today as the bond sales will allow the City to invest in key areas that improve the quality of life for Detroiters including investments in public lighting, transportation, public safety, recreation and economic development.
Detroit, MI – In ten years, Detroit has completed a remarkable financial turnaround on the journey from junk bond status to investment grade after receiving a double-notch rating increase from Standard and Poor’s Global Ratings on today, less than a month after Moody’s double-notch upgrade.
S&P has raised Detroit’s General Obligation (GO) debt to a BBB rating, noting the City’s strong fiscal management, positive financial results and improvements to reserves and liquidity. At the same time, S&P upgraded its rating on Detroit’s Public Lighting Authority and Income Tax backed debt issued through the Michigan Finance Authority (considered Priority-Lien debt because of their pledge of specific tax revenues) to A- from BBB.
S&P wrote: “Ten years on from its bankruptcy filing, Detroit's financial position and economic condition are the strongest they've been in decades. Liquidity and reserves are at record levels, the debt burden is manageable, population decline is flattening, the stock of blighted and vacant properties is down considerably thanks to extensive city-managed programs, assessed property values have increased in five consecutive years […], and taxable wages continue to grow.”
Mayor Duggan again praised the City’s Chief Financial Officers over the last decade: John Hill, Dave Massaron, Jay Rising, as well as Chief Deputy CFOs Tanya Stoudemire and John Naglick. The double-notch upgrade from both rating agencies stems from the hard choices, discipline and sound financial management they’ve made over the years,” Duggan said. “No one in 2014 would have predicted Detroit returning to investment grade with both rating agencies in less than a decade.”
Double-Double: Two notch increases from two rating agencies
S&P’s credit action follows an equivalent rating upgrade to Baa2 from Ba1 issued by Moody’s last month. Neither agency has rated Detroit investment grade since the beginning of 2009, and the back-to-back announcements highlight the incredible progress since the City exited bankruptcy just under 10 years ago.
They noted “In our view, concerted management action and institutional support to not only recover from bankruptcy, but also to revitalize Detroit’s economy and finances, enabled the city to capitalize on its situation.”
S&P also remarked that, “The rating action reflects Detroit’s strengthened financial position and our increased confidence in the city’s ability to sustain balance within the construct of its latest pension funding framework. Despite the pressures it faces, we feel the city is now well positioned to sustain a financial profile supportive of the ‘BBB’ rating given significant flexibility in the form of operating reserves, the Retiree Protection Fund (RPF), and stimulus funds, as well as a commitment to maintaining balanced operations. A very active management team with disciplined planning and budget oversight, a robust pipeline of ongoing economic development, and what we consider an achievable pension funding strategy further support the rating.”
Marked return to structural balance
Importantly, S&P notes that they have removed their “structural imbalance” adjustment, which depressed and limited Detroit’s rating. S&P has considered the City structurally imbalanced for years due to the pending fiscal cliff from paused legacy pension payments.
Now with the City poised to comfortably resume legacy pension payments with support from the RPF, S&P reports, “We feel the path ahead is well-defined and that the city can likely remain in line with the funding plan, so we removed our consideration of this [structural imbalance] adjustment.”
Moreover, S&P views the City’s acceleration of pension payments by switching from a level dollar to a level principal amortization as a credit positive: “Detroit shifted its pension funding policy this year, to a level principal amortization, instead of level dollar, which will result in higher contributions in the near-to-medium term. These will be funded with increased draws on the RPF and do not alter expected payments from the operating budget. We do not view the higher draws on the RPF, compared to previous expectations, as an indication of increased budget pressure, rather, this approach should reduce long-term risks by better funding the pension plans sooner, while still preserving flexibility with the RPF. We also view this as a reflection of an improved financial position, whereby the city can take on more volatility risks from higher contributions to increase long-term stability of the plan.”
Overcoming doubts of Detroit’s resilience
Prior to exiting Bankruptcy, a Plan of Adjustment (POA) was agreed upon that would put the City on track to restore basic services, though many doubted whether anything beyond “adequate” could be achieved. A feasibility study of the POA stated, “I do not need to envision that Detroit will become a best in class municipality to determine that the POA is feasible. For Detroit, emerging from essential services failure to adequate and reasonable service delivery will be a success.”
However, the City has exceeded every major expectation of the Plan of Adjustment:
Detroit Chief Financial Officer, Jay Rising noted:
“It is a remarkable testament to the City’s efforts that both Moody’s and S&P now rate Detroit as an investment grade credit, made even more significant by the ‘double’-double-notch upgrades. This historic accomplishment belongs not only to the City’s leaders –the mayor, his staff and, City Council but to all the residents, businesses, philanthropic partners and other organizations who kept their faith and investment in Detroit. Most importantly, these upgrades are a validation that residents can be assured that their City is fiscally stable and able to preserve and maintain city services.”
Detroit, MI -- The City of Detroit has capped off a remarkable financial turnaround, going from the nation’s largest municipal bankruptcy in 2014 to achieving investment grade status in just 10 years, Mayor Mike Duggan said today. The comments come after Moody’s Investors Services on Friday gave Detroit a rare two-notch bond rating increase from Ba1 to Baa2 with a positive outlook.
The new rating returns Detroit to investment grade status for the first time since 2009. In a report issued Friday March 22, 2024 Moody’s praised Detroit’s strong financial performance over the last decade as a key reason for the growing confidence:
“The upgrade of the issuer and GOULT ratings to Baa2 reflects Moody's expectation that the city will continue to bolster its financial resiliency and maintain the track record of solid operating performance that has been seen over the past several years.”
“Despite those credit pressures, Detroit's tax base valuation doubled over the past five years and ongoing development and appreciation of residential values will provide another boost in fiscal 2025.”
“The city's financial ratios are robust after a decade of solid financial performance. City management has adhered to strong governance practices and Moody's expectation is that such momentum will continue.”
Mayor Duggan gave special praise to the City’s Chief Financial Officers over the last decade: John Hill, Dave Massaron, Jay Rising, as well as Deputy CFOs Tanya Stoudemire and John Naglick. “It has been 10 years of hard choices and sound financial management by these great leaders,” Duggan said. “No one in 2014 would have predicted Detroit returning to investment grade in less than a decade.
Since the City’s bond rating was dropped to an all-time low of Caa3 in June 2013, it has earned 10 step increases, a rise few would have expected following its exit from bankruptcy less than a decade ago. Even a single-step increase to Baa3 would have brought Detroit back to investment grade.
“Even more encouraging is Moody’s rating of Detroit’s outlook for the future as positive,” Jay Rising said. “That is a strong indication that if we stay on track, Detroit could well see another upgrade in 2025.”
Mayor Duggan also credited a decade of sound budget decisions by Detroit City Council as a major contributor to Detroit’s success. “In 2014, all the analysts were predicting a financial crisis in 2023 when Detroit hit the “pension cliff” and had to start making $150 million a year in payments to the pension fund. City Council’s strong support to establish a $479 million Retiree Protection Fund over the last decade was key to our current success.”
Detroit’s double-notch upgrade also is the City’s first multi-notch upgrade since Moody’s adopted its current rating scale. The rating maintains the City’s positive outlook, citing resilience, solid financial performance and improving tax base as reasons to expect a continued upward trajectory.
Investment Grade status opens Detroit to new markets
This third consecutive year of upgrades from Moody’s is the most consequential. Many large investors (such as pension funds, mutual funds, and insurance companies) that purchase municipal bonds will only purchase investment-grade bonds. Breaking the barrier into investment-grade opens the City's bonds to a much wider market, in turn lowering interest rates. Lower borrowing rates also allow the City to reprioritize taxpayer money that would have otherwise been allocated towards paying interest. It also allows for greater investment in critical areas like infrastructure improvements, neighborhood revitalization, and public services.
Overcoming Doubts of Detroit’s Resilience
Prior to exiting Bankruptcy, a Plan of Adjustment (POA) was agreed upon that would put the City on track to restore basic services, though many doubted whether anything beyond “adequate” could be achieved. A feasibility study of the POA stated, “I do not need to envision that Detroit will become a best in class municipality to determine that the POA is feasible. For Detroit, emerging from essential services failure to adequate and reasonable service delivery will be a success.”
However, the City has exceeded every major expectation of the Plan of Adjustment:
From Bankruptcy to Investment Grade
The improved bond rating is indicative of the City’s improving economy and tax base, according to the Moody’s report: “Detroit’s economy has markedly improved in recent years and will continue to recover given preliminary tax base growth, improved services, reduced blight and a pipeline of development projects, including major investments in new downtown hotels, retail, condos and apartments.”
Moody’s further noted, “Despite credit pressures, Detroit’s tax base valuation doubled over the past five years and ongoing development and appreciation of residential values will provide another boost in fiscal 2025. The city’s financial ratios are robust after a decade of solid financial performance. City management has adhered to strong governance practices and Moody’s expectation is that such momentum will continue."
Jay Rising thanked all the Detroit staff who worked so hard over the last decade: “This achievement reflects the dedication and hard work of countless individuals. Our team, alongside leaders across all departments, have been instrumental in driving this positive change. We are committed to maintaining this fiscal responsibility for the benefit of all Detroiters."
Moody’s also acknowledged fiscal management as key areas of strength which place Detroit on par with even higher rated cities in the single-A and above categories. “Detroit's available fund balance ratio will likely remain around 35%, which is the Aaa-scorecard threshold, because moderate revenue growth will offset rising expenditure pressures. Additionally, the city's budget management practices – including a sophisticated revenue-setting process – will provide it with tools to respond to possible adverse developments, such as an economic downturn."
In previous years, Moody’s stated that Detroit needed to demonstrate structural balance. For the past decade, the pending pension cliff had impacted Detroit’s credit rating. To address that risk and protect retiree pension funding, in 2017 the City established and began building reserves in the Retiree Protection Fund (RPF). The RPF balance reached $479 million in assets as of December 2023.
The City will draw on the RPF to offset pension payments beginning this year, successfully easing the “cliff” into a manageable ramp and clearly demonstrating structural balance. Moody’s confirmed the importance of this commitment in commenting that: “The city has modest future debt plans and it has resumed its actuarially determined pension contributions with little challenge.”
Momentum Likely to Continue
Moody’s commended the City’s strong leadership in financial management, citing a solid track record of balanced budgets and general fund operations since the bankruptcy exit in November 2014: “Projected fiscal 2024 general fund revenues are up roughly $73 million compared to the adopted budget, based on year-to-date performance. The city plans to redirect that money back into services such as blight remediation, capital and public safety, and will end with roughly balanced operations.”
The positive outlook assigned with the credit rating is due to an increasing tax base and revenue growth. The City could experience a future upgrade if these trends continue, along with its strong management practices and continued maintenance of its fund balance and long-term liabilities.
On February 12, the City of Detroit held its regular biannual Revenue Estimating Conference to receive an update on the Detroit economic outlook and approve new economic and revenue forecasts for the remainder of fiscal year 2024 and for fiscal years 2025 through 2028. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available for its annual budget and four-year financial plan.
Detroit’s Economy Continues to Grow at a Steady Pace
Detroit’s economy continues to show steady growth marked by job and wage gains for Detroiters and improving employment level, according to the Detroit Economic Outlook for 2023-2028 released by the University of Michigan earlier this month.
The economic outlook report shows “payroll jobs are expected to increase by 3,000 this year after 600 net job losses in 2023. Job gains accelerate to 3,800 in 2025 and then average 1,700 a year for the duration of the forecast.” Employment grows for Detroiters by an average of 1,600 residents yearly through 2028, as resident employment grows faster than payroll employment. Payroll employment means jobs located inside the City, whether held by residents or nonresidents. Resident employment means jobs held by Detroiters, whether located inside or outside the City.
The City’s jobless rate is projected to fall from 8.2% to 7.1% by the end of the forecast period. And “those declines come along with growth in the city’s labor force, which reaches its highest level since 2013 by the end of our forecast period,” according to the economic outlook report. Overall, the report shows City residents will see larger paychecks over the next four years, increasing by 3.7% per year while payroll jobs located in the city will increase by 3.4%. Average resident wages are expected to climb to nearly $50,000 by 2028, 42% higher than in 2019 and 86% higher than in 2014.
Revenue Outlook is Stable with Steady Growth
The City’s revenue outlook is improving, with steady growth led by income taxes, which follow our continuing efforts driving economic opportunity and growth for Detroiters. The Revenue Conference has revised revenue estimates slightly upward for the current fiscal year, showing the City’s resilience, notwithstanding a short-term interruption in wagering taxes during the casino workers’ strike last November.
These revenue estimates are based on the most recent economic projections and forecasting models. As with any economic and revenue forecast, there are potential risks to the estimates approved today, including unexpected changes in local employment and current income tax collections, as well as competing State budget pressures affecting forecasted revenue sharing. However, the City’s efforts to continue attracting major employers and providing Detroiters with opportunities for good-paying jobs help mitigate such risks and provide potential upside to the forecast.
“Detroit continues to see a healthy economy from the City’s strategy of creating good-paying jobs in diverse economic sectors, despite higher interest rates. This economic resilience will benefit the City as growth stabilizes in the post-pandemic period ahead. We will continue, as in prior years, to provide fiscal stability through balanced budgets that protect Detroit’s ability to fund its obligations while further improving the quality of life for Detroiters,” said Jay Rising, Chief Financial Officer, City of Detroit.
Revenue Estimating Conference Results
The Revenue Conference reported FY2024 General Fund recurring revenues projected at $1.290 billion for the current fiscal year ending June 30, 2024, up $5.5 million (0.4%) from the previous conference estimate in September 2023. The increase is primarily due to the higher income taxes, offset by temporarily lower on-site casino revenue due to the November casino workers’ strike.
General Fund recurring revenues for FY2025, which begins July 1, 2024, are now forecasted at $1.329 billion, an increase of $39.5 million (3.1%) year-over-year compared to the revised FY2024 estimates. The projected increase is led by income taxes as the local economy continues to see steady growth in jobs and wages. The out-year forecasts for FY2026 through FY2028 show continued overall recurring revenue growth of about 2% per year.
The City will use the estimates approved today for the City’s FY2025 Budget and FY2025 through FY2028 Four-Year Financial Plan. The voting conference principals are Jay B. Rising, the City’s Chief Financial Officer; Eric Bussis, Chief Economist, Director, Office of Revenue and Tax Analysis, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Professor Emeritus, Research Seminar in Quantitative Economics (RSQE), Department of Economics, University of Michigan.
Find more information on the Revenue Estimating Conference at detroitmi.gov/budget.
The City of Detroit’s Office of Budget has received the Government Finance Officers Association’s Distinguished Budget Presentation Award for its Fiscal Year 2024 Budget. This GFOA award reflects national best practices in planning and communication and is granted to state and local governments across the country. Detroit has not received the award since 2012, and its return is a significant City achievement recognizing “the commitment of the governing body and staff to meet the highest principles of governmental budgeting.”
“We are proud to resume receiving the Distinguished Budget Presentation Award from GFOA. The Budget team is committed to accurately reflecting the City’s financial and policy priorities in a transparent, accessible, and thorough annual Budget document. This would not have been possible without the strong leadership and collaborative partnership of the Mayor, City Council, Legislative Policy Division, Office of the Chief Financial Officer, and all the departments Citywide that participate in the Budget process,” said Steve Watson, Deputy Chief Financial Officer, Budget Director.
To receive the budget award, Detroit had to satisfy nationally recognized guidelines for effective budget presentation. These guidelines are designed to assess how well an entity’s budget serves as a policy document, a financial plan, an operations guide, and a communication.
Budget documents must receive a "proficient" rating in all four categories, and in the fourteen mandatory criteria within those categories, to receive the award. When a Distinguished Budget Presentation Award is granted, a Certificate of Recognition for Budget Presentation is also presented.
There are over 1,700 participants in the Budget Awards Program. The most recent Budget Award recipients, along with their corresponding budget documents, are posted quarterly on GFOA's website.
“Award recipients have pioneered efforts to improve the quality of budgeting and provide an excellent example for other governments throughout North America,” said GFOA officials.
As is customary, the Award certificate for Fiscal Year 2024 will appear in the Mayor's Recommended Annual Budget for Fiscal Year 2025 when it is presented to the Detroit City Council in March 2024.
In September and October, the budget team held its Annual Public Budget Meetings and Budget Priorities Forums in all seven City Council districts. The Mayor will propose his Recommended Annual Budget for Fiscal Year 2025 on or before March 7, 2024. You can view all budget documents at www.detroitmi.gov/budget.
On September 11, the City of Detroit held its regular biannual Revenue Estimating Conference to receive an update on the Detroit economic outlook and to approve revised economic and revenue forecasts for the remainder of fiscal year 2024 and for fiscal years 2025 through 2028. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available for its annual budget and four-year financial plan.
Revenue Outlook Continues to Improve
The Detroit Economic Outlook for 2022-2028, which was previously released in August, predicts the City’s economy will continue to see steady growth, with increasing jobs and wages. The forecast is prepared by the City of Detroit University Economic Analysis Partnership, which is a collaboration of economic researchers from the City, Wayne State University, Michigan State University, and the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan.
The City’s revenue outlook continues to improve, thanks to the strength of our income tax and our continuing efforts driving economic opportunity and growth for Detroiters. The Revenue Conference has revised revenue estimates moderately upward for the current fiscal year based on stronger tax collections concluding the previous fiscal year, Detroit's continued economic growth and stability, and revenue sharing increases provided in the State Budget enacted in July. Income taxes continue to lead revenue growth in future years, in line with the City’s economic forecast.
These revenue estimates are based on the most recent economic projections and forecasting models. As with any economic and revenue forecast, there are potential risks to the estimates approved today, including unexpected changes in local employment and current income tax collections, as well as competing State budget pressures affecting forecasted revenue sharing. However, the City’s efforts to continue attracting major employers and providing Detroiters with opportunities for good-paying jobs provide potential revenue upside to the forecast.
“The steady growth projected for Detroit’s economy is reflected in the stability and growth in our revenue forecast. We will continue as in prior years to provide fiscal stability through balanced budgets that protect Detroit’s ability to fund its obligations while further improving the quality of life for Detroiters,” said Jay Rising, Chief Financial Officer, City of Detroit.
Revenue Estimating Conference Results
The Revenue Conference reported FY2024 General Fund recurring revenues projected at $1.284 billion for the current fiscal year ending June 30, 2024, up nearly $31 million (2.5%) from the previous conference estimate in February 2023. The increase is driven by our growing income and property tax base and revenue sharing increases provided by the State of Michigan. The FY2024 revenue estimates also include an additional $25.8 million of non-recurring revenues, primarily from short-term investment earnings.
General Fund recurring revenues for FY2025, which begins July 1, 2024, are now forecasted at $1.315 billion, an increase of $31 million (2.4%) over the revised FY2024 estimates above. The projected increase is led by income taxes as the local economy continues to see steady growth in jobs and wages. The out-year forecasts for FY2026 through FY2028 show continued overall revenue growth of about 2% per year.
The City will use the estimates approved today to begin developing the City’s FY2025 Budget and FY2025 through FY2028 Four-Year Financial Plan. The conference will meet again to approve revised revenue estimates in February 2024. The voting conference principals are Jay B. Rising, the City’s Chief Financial Officer; Eric Bussis, Chief Economist, Director, Office of Revenue and Tax Analysis, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Professor Emeritus, Research Seminar in Quantitative Economics (RSQE), Department of Economics, University of Michigan.
Please see links to the Revenue Estimating Conference presentation slides below.
To review past Revenue Estimating Conference Reports visit Financial Reports under Revenue Estimating Conference Reports section.
City of Detroit bonds received an overwhelming positive response from investors in a return to the market Thursday, a clear indication that Detroit is seen as a good investment. City leaders issued the remaining $75 million of the voter-approved $250 million Proposal N (Neighborhoods) bond, a comprehensive plan to address vacant houses through rehabilitation or demolition along with $25M of previously voter-approved bonds for capital. During the pricing, Detroit received nearly $3 billion of orders for its bonds from 67 unique investors or roughly 30 times as many orders as the City needed for its $100 million issue.
Proposal N neighborhood improvement bonds have been a key component in the Duggan administration’s Blight to Beauty campaign. According to Detroit’s Proposal N Demolition and Stabilization Tracker, that only tracks Proposal N activity, 4,239 homes have been demolished to date, while 1,540 have been secured for resell and 941 are being prepped for resell.
The City of Detroit priced $100 million Unlimited Tax General Obligation Bonds, consisting of $52.5 million Series 2023A (Tax-Exempt) Neighborhood Improvement Bonds (Social Bonds), $22.5 million Series 2023B (Taxable) Neighborhood Improvement Bonds (Social Bonds) for property rehabilitation, demolition, and remediation, and $25.0 million Series 2023C (Tax-Exempt) for certain transportation and recreation projects. An estimated 2,500 properties will either be demolished or stabilized with this latest bond offering.
The issuance remains aligned with the Mayor’s announcement of lowering the debt millage from 9 mills to 8 mills in 2023 and an additional reduction to 7 mills in 2024.
Ahead of the deal, the City of Detroit’s financing team led by Chief Financial Officer, Jay Rising met with many investors to market the transaction. As a result of investor meetings and years of effort improving Detroit’s credit, the City generated overwhelming demand for the bonds. The substantial interest from investors made it possible to accelerate the deal a week early and take advantage of a favorable market.
During the pricing process, due to the significant demand for the bonds, the City and its underwriters were able to reduce the interest cost by lowering spreads 25 to 50 basis points across all maturities. “We are very pleased with the outcome of this pricing given the turbulent and high interest rate environment over the last year. The fact that the City of Detroit was able to garner $3 billion of orders at a time when very few issuers with similar ratings are able to enter the market is a testament to investors’ belief in Detroit’s credit story and upward trajectory,” said Rising.
Seizing the Strong Market
Interest rates have risen steeply over the past two years as the Federal Reserve issued ten consecutive rate hikes in its effort to combat inflation, bringing interest rates to their highest levels since 2007. While these rate hikes have generally made debt more difficult and costly due to the higher interest payments, the positive inflation news in last week’s, July Consumer Price Index report produced better than expected results and showed inflation falling to 3.0%--its lowest level since March 2021. The positive news reverberated through the markets as investors reacted favorably, lowering bond yields and creating a window of opportunity the City seized upon to obtain lower interest rates.
Detroit on the cusp of Investment Grade
Rating upgrades from both Moody’s and S&P have continued to recognize Detroit’s strong fiscal management and support the City’s vision behind Proposal N that blight reduction pays dividends to both residents and the City’s finances. In the most recent rating Moody’s highlighted the City’s positive outlook “because of ongoing strengthening of the city's financial operations including robust revenue growth and increasing reserves.” S&P fortified the upgrade stating, “Detroit's financial position and economic condition are the strongest they've been in decades.”
Detroit marketed the 2023A and 2023B Neighborhood Improvement Bonds with the “Social Bond” designation to attract Environmental, Social, and Governance (ESG) focused investors that are interested in financing socially beneficial projects. This follows the 2021 Neighborhood Improvement Bonds which were also marketed as “Social Bonds” and won both the prestigious Bond Buyer Midwest Deal of the Year Award and the Environmental Finance Social Bond of the year award in the US Muni Bond category.
Strong interest from the ESG Funds allowed the City to prioritize placement of bonds with investors supporting the sustainability goals recognized by Proposal N and to lower costs for the City.
S&P Global Ratings has raised Detroit’s General Obligation (GO) debt to a BB+ rating, noting the City’s strong fiscal management, positive financial results and improvements to reserves and liquidity. At the same time, S&P upgraded its rating on Detroit’s Public Lighting Authority and Income Tax backed debt issued through the Michigan Finance Authority (considered Priority-Lien debt because of their pledge of specific tax revenues) to BBB from BBB-. Additionally, S&P assigned a positive outlook to both GO and Priority-Lien debt: “The positive outlook reflects our view of Detroit's recent revenue growth and forecasts showing that it can follow through with its financial plan,” signifying an expectation of another rating upgrade in the next one to two years.
S&P’s credit action follows an equivalent rating upgrade to Ba1 from Ba2 issued by Moody’s earlier this month, also with a positive outlook. The back-to-back announcements highlight the incredible progress since the City entered bankruptcy just under 10 years ago.
S&P remarked that, “Ten years on from its bankruptcy filing, Detroit's financial position and economic condition are the strongest they've been in decades. Liquidity and reserves are at record levels, the debt burden is manageable, population decline is flattening, the stock of blighted and vacant properties is down considerably thanks to extensive city-managed programs, assessed property values have increased in five consecutive years […], and taxable wages continue to grow.”
Cusp of investment grade
Both rating agencies have Detroit one notch away from investment grade. This is the highest rating the City has held from S&P since the beginning of 2009. Improved bond ratings are indicative of a city’s finances and financial profile, and higher ratings mean lower costs for governments when they borrow funds to pay for various capital improvements.
While the Plan of Adjustment (POA) and restructuring process provided support to recover, as well as recent federal aid from the pandemic, S&P attributed much of the positive developments to the City’s own strong management.
“In our view, concerted management action and institutional support to not only recover from bankruptcy, but to revitalize Detroit's economy and finances, enabled the city to capitalize on its situation. The post-financial-crisis economic recovery aided the city, but city policies (such as increasing public safety responsiveness and revamping public lighting) and new economic development initiatives expanded opportunities and buttressed the city's reputation, accelerating credit improvements. These improvements are significant compared with forecasts in the POA.”
S&P further indicated the potential upside scenario for Detroit if the city maintains adherence to its financial plan:
“All else equal, we could raise the rating if it becomes apparent that RPF draws will not accelerate over the next several years, increasing the certainty that pension contributions can be absorbed within the operating budget. Ongoing revenue growth and improvements in macroeconomic conditions could also contribute to a higher rating.”
Detroit Chief Financial Officer, Jay Rising noted:
“The back-to-back ratings upgrade from Moody’s and now S&P reflect the overall success of the financial and economic strategies the City has employed. S&P’s upgrade and positive outlook validate that belief that the creation of a safer, healthier, beautiful and economically vibrant City have driven positive financial results.”
• Moody’s upgrades Detroit bond rating to Ba1 from Ba2 with positive outlook
• Moody’s noted the City’s ability to manage rising pension costs, solid budget management and continued revenue growth as reasons for upgrade
• Highest rating from Moody’s since January 2009
The City of Detroit’s bond rating has been upgraded once again by Moody’s Investors Service, bringing Detroit one step away from Investment Grade status, which it has not had since 2009. The upgrade follows nine consecutive years of balanced budgets since the city exited bankruptcy in December 2014 and an economic resurgence in the city.
In a report issued Wednesday, Moody’s announced it has upgraded Detroit’s rating to Ba1 with a positive outlook, a move that reflects the improvement and strengthening of the city’s financial position and structural balance. This rating marks a second consecutive year in which Detroit has seen an upgrade from Moody’s. Last year Detroit was upgraded from Ba3 to Ba2 with a ‘positive’ outlook, which was the City’s first upgrade from Moody’s since 2018.
“Chief Financial Officer Jay Rising and his team have done a fantastic job of managing our city’s finances and they deserve a great deal of credit for this latest upgrade,” said Mayor Mike Duggan. “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.”
Higher ratings mean lower costs for governments when they borrow funds to pay for various investments and upgrades. Those lower costs also translate to resources that instead can be applied to city services that further improve the quality of life in city neighborhoods.
The improved bond rating is indicative of the City’s financial strength and management, according to the Moody’s report:
“The issuer rating was upgraded to Ba1 because the city is well positioned to manage its rising pension contributions for at least the next few years. The city’s solid budget management and robust revenue growth have enabled it to accumulate resources in an irrevocable trust and increase its available fund balance to levels that are strong compared to peers,” noted Moody’s.
Rising responded to Moody’s upgrade by commenting that:
“This latest upgrade by Moody’s is significant evidence of the City’s continuing fiscal recovery that has been marked by multiple years of balanced budgets and a growing tax base. Our goal remains to have an investment grade restored. We believe we've earned investment grade credit and will continue our strong fiscal management while carrying out the job and economic growth strategies of the administration in partnership with City Council.”
In previous years, Moody’s opined that Detroit needed to demonstrate structural balance. The pending pension cliff in Fiscal Year 2024—when the City will resume contributions to the Legacy Pension Funds—impacted Detroit’s credit rating for a decade. To address that risk and protect retiree pension funding, in 2017 the City established and began building reserves in the Retiree Protection Fund (RPF). The RPF balance reached $473 million in assets in 2023.
The City will draw on the RPF to offset pension payments beginning in FY2024, successfully easing the “cliff” into a manageable ramp and clearly demonstrating structural balance. Moody’s confirmed the importance of this commitment in commenting that:
“The City’s rating is likely to move upward if… the city is able to continue to make progress in absorbing pension contributions and inflationary cost growth into its budget without adversely impacting its financial operations.”
Detroit’s Economic Recovery “is real, sustained”
The report also highlights the City’s diversifying economic base and strengthening job growth.
“… the city's economic recovery is real, sustained over several years and likely to continue given the pipeline of downtown development projects and the substantial investments made by automakers in battery and electric vehicle manufacturing in both the city and region. For example, Waymo, a subsidiary of Alphabet Inc. (Aa2 stable), opened a self-driving car facility; General Motors (Baa3 stable) is reconfiguring its Detroit-Hamtramck Assembly Center into Factory Zero, a fully dedicated electric vehicle assembly plant; Stellantis (Baa2 stable) retooled it facilities to build an all-electric Jeep; Ford Motor Company (Ba2 stable) restored Michigan Central Station and is developing an adjacent innovation center for as many as 5,000 employees.”
Moody’s indicated several key factors that could lead to future rating upgrades:
• Prudent deployment of the city’s retiree protection fund and sustained absorption of pension contributions into the recurring revenue budget.
• Continued revenue growth that enables the city to manage its growing expenditure needs
• Strengthening of full value per capita, median household income and population trends
Moody’s rating is based upon economic and demographics measures, as well as possible notching factors as defined by the US Local Government General Obligation Debt methodology. The full report can be found below.
On February 13, the City of Detroit held its regular biannual Revenue Estimating Conference to receive an update on the Detroit economic outlook and approve revised economic and revenue forecasts for the remainder of fiscal year 2023 and for fiscal years 2024 through 2027. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available for its annual budget and four-year financial plan.
Revenue Outlook Remains Resilient
The Detroit Economic Outlook for 2022-2027, previously released earlier in February, predicted that Detroit’s economy will continue growing at a steady pace, despite projections of a mild national recession in late 2023 to early 2024. Demand for good-paying blue-collar jobs, spurred by City-led efforts driving economic opportunity and growth for Detroiters, prove to be a major factor in the City’s economic resilience. Consequently, the City’s revenue outlook continues to improve despite economic challenges at the national level.
In line with the economic outlook, the Revenue Conference has approved higher revenue estimates based on stronger projected income and utility tax collections. Updated forecasts show employment stability in key sectors, boosting income tax collections as wages continue to catch up to prices. Stronger than expected internet gaming collections and elevated natural gas prices have offset weaker on-site gaming collections, increasing revenue expectations. All other revenues are expected to see stable but more modest growth.
As with any economic and revenue forecast, there are potential risks to the estimates agreed to today, the largest being slower employment and wage growth should national economic trends and the monetary policy response prove more adverse. Future gaming behavior at Detroit’s casinos, such as larger than projected internet gaming substitution effects, remain a risk as well. Conversely, additional development projects and labor force gains would help bolster revenue growth. Proposed increases in State Revenue Sharing and other funding in the State Budget provide potential upside to the forecast too.
“Despite projections of a mild national recession, the Detroit economy has proven to be more resilient today supported by the administration’s growth and opportunity strategies. The revenue estimates are in part a direct reflection of that resiliency. As we navigate economic risks ahead, we will continue to provide fiscal stability through conservatively balanced budgets that protect Detroit’s ability to fund its obligations while improving the quality of life for Detroiters,” said Jay Rising, Chief Financial Officer, City of Detroit.
Revenue Estimating Conference Results
The City presented FY2023 General Fund recurring revenues projected at $1.226 billion for the current fiscal year ending June 30, up $39.1 million (3.3%) from the previous FY2023 conference estimate in September 2022. The increase is driven by stronger anticipated income tax collections and utility users tax collections. In addition, the City is projecting $3.1 million in non-recurring revenues this year. General Fund recurring revenues for FY2024, which begins July 1, are now forecasted at over $1.253 billion, an increase of $39.2 million (3.2%) from the previous FY2024 conference estimate in September 2022. The projected increase is driven by income taxes, as the local economy stabilizes and adjusts to a tight labor market. The conservative General Fund revenue forecasts for FY2025 through FY2027 show continued, but modest, revenue growth of around 2% per year on average, led by income tax growth.
The estimates approved today will set the revenues for the City’s FY2024 Budget and FY2024 through FY2027 Four-Year Financial Plan. The voting conference principals are Jay B. Rising, the City’s Chief Financial Officer; Eric Bussis, Chief Economist, Director, Office of Revenue and Tax Analysis, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Professor Emeritus, Research Seminar in Quantitative Economics (RSQE), Department of Economics, University of Michigan.
Please see links of the recorded Revenue Estimating Conference and PDFs of slide presentations below.
To review past Revenue Estimating Conference Reports visit Financial Reports under Revenue Estimating Conference Reports section.
Detroit’s economy will continue growing at a steady pace, showing resilience post pandemic despite projections of a mild national recession, according to the Detroit Economic Outlook for 2022-2027 released this week by the University of Michigan.
“We expect Detroit’s resilience in recovering from the pandemic to date to translate into continued growth – even amid a challenging national economy,” said Gabriel Ehrlich, director of U-M's Research Seminar in Quantitative Economics and lead author of the forecast.
Detroit economy lifted by demand for blue-collar jobs, risks remain
Overall, projections show that employment will “climb every year from 2023 to 2027” ending the forecast “well above pre-pandemic levels adding 2,200 jobs this year before accelerating to an average 2,700 jobs per year through 2027. Last year, Detroit gained 8,000 jobs, with blue-collar jobs continuing to lead the way, exceeding pre-pandemic levels by 6,000 jobs. Continued growth in blue-collar jobs and recovery in the Leisure and Hospitality sector help offset recent losses and slower growth in the Financial Activities sector.
While risks to the forecast remain, such as delays in construction projects and lasting effects from remote work, City-led efforts to provide good-paying jobs to Detroiters have built up resilience to withstand a downturn. Further, the City is well prepared financially to withstand the revenue risks of a slowing economy because of strong fiscal management that has maintained balanced budgets and grown reserves, while improving the quality of life for Detroiters and meeting financial obligations to City retirees and employees.
City-led efforts attract good-paying jobs, extend opportunity to more Detroiters
The City’s resilient economy is based largely on its ongoing success attracting good-paying jobs to Detroit. In 2023, the city is expected to add another 1,200 jobs at the Amazon distribution center at the state fairgrounds and break ground on a new employment center at the site of the former AMC headquarters, which is expected to provide up to 400 new jobs. Lear’s new seating facility on the site of the former Cadillac Stamping Plant also is expected to reach full employment of at least 400 in 2023.
Wages in Detroit are also projected to increase this year, according to the forecast report. Following a gain of 3.2% in 2022, wage gains are expected to reach 4.3% this year and return to 3% through the forecast. Wage growth is then expected to beat out inflation from 2024 and forward. The report also forecasts wage growth of Detroit residents to keep pace with wages at jobs located in the City over the forecast period. Average resident wages are expected to climb to $47,500 by 2027.
Further, the U of M forecast “expects the city’s continued recovery over the coming years to draw workers back into the labor force.” As of February 6, there were 8,865 jobs available for those Detroiters looking for work. And if training is needed, the City will connect residents to training programs.
Through programs like Jump Start, the City is ensuring more Detroiters will benefit from new jobs and wage growth. Jump Start is a major first-of-its-kind $100 million Scholarship program that’s designed to help long-term unemployed residents get reengaged in the job market through paid education and career/job training programs. Jump Start is expected to get 1,200 Detroiters back in the workforce with plans to reach more.
“Despite projections of a mild national recession, the Detroit economy has proven to be more resilient today supported by multiple years of balanced budgets for the City post-bankruptcy. We will continue employing the administration’s growth and opportunity strategies to further sustain and grow the City’s economy and improve the quality of life for Detroiters,” said Jay Rising, Chief Financial Officer, City of Detroit.
The forecast is prepared by the City of Detroit University Economic Analysis Partnership, which is a collaboration of economic researchers at the City, Wayne State University, Michigan State University, and the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan.
Detroit’s economic outlook will be discussed at its next Revenue Estimating Conference at 1:00 p.m. Monday, February 13 in the 13th Floor Erma L. Henderson Auditorium.
The public is invited to attend in person or virtually at https://cityofdetroit.zoom.us/j/87228238067.
Today, the Demolition Department announced its 3,000th property demolition milestone, powered by Proposal N, the City of Detroit’s bond-funded blight removal program. The program was approved by voters in 2020 and is making a significant impact in neighborhoods that once felt left behind. The department is on-track to demolish 8,000 blighted homes across the city.
"Thanks to voters approving Proposal N, our blight removal program is able to do what we could not under federal funding restrictions, which is to reach every neighborhood in the city," said Mayor Mike Duggan. "Days like today are important to let residents know that while we weren't able to reach their neighborhood until now, they were never forgotten. We're going to keep moving through the city removing the homes that can't be saved and preserving the ones that can until we have addressed every blighted vacant home."
To date, the Demolition Department has utilized $63 million in bond funding to demolish 3,000 properties and stabilize over 1,300 for sale. Post-demolition, vacant side lots are available for residents to purchase for $100 through the Detroit Land Bank Authority.
“We made a commitment to remove blight across the city, and we're delivering on that promise,” shared LaJuan Counts, Demolition Department Director. “Proposal N funds have allowed us to move more efficiently and create jobs for Detroit-based, minority-owned contractors but most importantly opportunities for residents of our great city.”
This morning, lifelong Detroiter Patricia Carter watched with great relief as one of the Demolition Department’s Detroit-based, minority-owned contractors, DMC Consultants, demolished and cleared a vacant home that has stood for years in the Oakman Boulevard Neighborhood.
“I’ve lived in this neighborhood for fifty-four years,” said Carter, who serves on the Oakman Boulevard Community Block Club. “I’ve seen what some of my neighbors have done with the vacant lots after the houses were knocked down – they’ve really dressed them up. I’m very happy to see more of the demolition around here.”
City of Detroit Reports Revised Revenue Estimates for Fiscal Years 2023-2027
City’s revenue outlook continues to improve, thanks to strength of income tax and continuing efforts driving economic opportunity and growth for Detroiters
Economic effects from the pandemic and future gaming behavior remain risks to the revenue forecast
Additional development projects throughout Detroit could bolster more robust levels of revenue growth.
DETROIT - On September 12, the City of Detroit held its regular biannual Revenue Estimating Conference to receive an update to the Detroit Economic Outlook for 2021-2027 and approve revised economic and revenue forecasts for the remainder of fiscal year 2023 and for fiscal year 2024 through fiscal year 2027. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available to be budgeted for the next four years.
The Detroit Economic Outlook for 2021-2027, which was previously released in August, shows the City’s economy holding up in the face of national economic headwinds, as development projects in Detroit and pent-up demand in the auto industry prove to be major drivers in the City’s ongoing economic recovery. The forecast is prepared by the City of Detroit University Economic Analysis Partnership, which is a collaboration of economic researchers between the City, Wayne State University, Michigan State University, and the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan.
Revenue Outlook Continues to Improve
The City’s revenue outlook continues to improve, thanks to the strength of our income tax and our continuing efforts driving economic opportunity and growth for Detroiters. The Revenue Conference has once again approved higher revenue estimates based on our stronger collections concluding the previous fiscal year, Detroit's continued economic growth and stability, and revenue sharing increases provided in the State Budget enacted in July. Income taxes continue to drive revenue growth in future years as well, in line with the City’s economic forecast and despite an ongoing loss from nonresidents expected to continue working remotely through hybrid work models. Economic effects from the pandemic and future gaming behavior remain risks to the revenue forecast. However, the City’s efforts to attract major employers and provide Detroiters with opportunities for good-paying jobs provide potential revenue upside to the forecast. Additional increases in revenue sharing from the State of Michigan could provide potential upside as well.
“The improved revenue outlook is further indication that the City’s efforts to spur economic growth-by attracting new businesses, creating opportunities for Detroiters, improving public safety and beautifying neighborhoods are working despite the pandemic and its lingering consequences,” said, Jay Rising, Chief Financial Officer, City of Detroit.
Revenue Estimating Conference Results
The Revenue Conference reported FY2023 General Fund recurring revenues projected at $1.187 billion for the current fiscal year ending June 30, up $41 million (3.6%) from the previous conference estimate in February 2022. The increase is driven by our growing income and property tax base and revenue sharing increases provided by the State of Michigan. Internet gaming continues to provide additional revenue stability in the face of weaker on-site gaming activity.
General Fund recurring revenues for FY2024, which begins July 1, are now forecasted at $1.214 billion, an increase of $27 million (2.3%) over the revised FY2023 estimates. The projected increase is driven by income taxes, as the local economy continues to recover and grow. The conservative General Fund revenue forecasts for FY2025 through FY2027 show continued, but more modest, revenue growth of less than 2% per year. Additional development projects throughout Detroit could bolster more robust levels of revenue growth.
The City will use the estimates approved today to begin developing the City’s FY2024 Budget and FY2024 through FY2027 Four-Year Financial Plan. The conference will meet again to approve revised revenue estimates in February 2023. The voting conference principals are Jay B. Rising, the City’s Chief Financial Officer; Eric Bussis, Chief Economist, Director, Office of Revenue and Tax Analysis, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Professor Emeritus, Research Seminar in Quantitative Economics (RSQE), Department of Economics, University of Michigan.
· September 2022 Revenue Conference – Detroit Economic Outlook Slides
· September 2022 Revenue Conference – Revenue Estimates Slides
· Link to Zoom recording of September 2022 Revenue Conference
To review past Revenue Estimating Conference Reports visit Financial Reports under Revenue Estimating Conference Reports section.
S&P Global Ratings has raised Detroit’s General Obligation (GO) debt to a BB rating, noting the City’s improving economic outlook and strong fiscal management. At the same time, S&P upgraded its rating on Detroit’s Public Lighting Authority and Income Tax backed debt issued through the Michigan Finance Authority (considered Priority-Lien debt because of their pledge of specific tax revenues) to BBB- from BB+, marking a return to investment grade on certain bonds secured by pledged revenues.
Additionally, S&P assigned a positive outlook to both GO and Priority-Lien debt: “Detroit remains, in our view, on a trajectory to meet increasing pension costs in the near and long term within a balanced budget framework, and if it does so, we could raise the rating. We feel the city has fiscal discipline and flexibility that can keep it on track should it experience economic slowdowns or higher-than-forecasted pension increases.”
S&P’s credit action follows an equivalent rating upgrade to Ba2 from Ba3 issued by Moody’s last Wednesday, also with a positive outlook. The back-to-back announcements highlight not only strong fiscal management and budgetary performance, but also the rating agencies’ positive assessment of the administration’s strategy for Detroit. Both S&P and Moody’s indicated that the reasoning behind rating upgrades included the City’s investments in workforce training, economic development, blight removal, and beautification.
The S&P credit opinion emphasizes improving fundamentals in Detroit’s economy. The report notes, “Successes to date are reflected in increasing property values, improved public safety metrics, and reduced poverty rates; and substantial new job creation within the city likely reflects the private sector’s recognition of an increasingly skilled labor force.”
The City’s strategic use of American Rescue Plan Act (ARPA) stimulus will bolster future growth, in S&P’s opinion. Their report states, “Detroit continues to prioritize investing in its residents and ARPA funds will accelerate this. The focus is on continued blight and abandoned building removal, streetscaping, and beautification projects, all of which have proven to increase home values and public safety, along with people projects such as paying for job training and degree attainment, improving internet access, and facilitating record expungements, which help better position residents for jobs.”
S&P further indicated the potential upside scenario for Detroit: “We could raise the rating over the next one-to-two years if the city sustains budgetary balance, including increasing pension contributions and not relying on reserves, and if we feel it is likely to continue to do so without deferring expenses or depleting the RPF at a rate that puts future budgets at increased risk.”
Detroit last saw an upgrade on its GO debt from S&P in February 2019, when the rating agency raised the City to a BB- from a B+. The last time Detroit held a rating as high as BB from S&P was a decade ago in March 2012. Improved bond ratings are indicative of a city’s finances and financial profile, and higher ratings mean lower costs for governments when they borrow funds to pay for various capital improvements.
Detroit Chief Financial Officer Jay Rising noted that “this S&P upgrade is a double dose of good news; affirming the efforts taken to improve the City’s general obligation credit and returning an important segment of our portfolio to investment grade. The upgrade is the product of the strategy of rebuilding the City’s credit through creating economic opportunities, improving security and restoring the beauty of the City for Detroiters.”
The Priority-Lien rating relates to the 2014 Income Tax Bonds which are secured by municipal income taxes, and the 2014 Public Lighting Authority (PLA) bonds which are secured by utility users taxes (UUT).
Moody’s Investors Service has upgraded the City of Detroit’s credit rating to Ba2 with a “positive” outlook in a report issued Wednesday, a move the ratings agency said reflects the improving and strengthening of the city’s financial position. The announcement comes days after Mayor Mike Duggan presented his recommended 8th consecutive balanced budget to City Council.
Detroit last saw an upgrade from Moody’s in May 2018. This is the first time since 2009 that the City has received a Ba2 rating. Improved bond ratings are indicative of a city’s finances and financial profile, and higher ratings mean lower costs for governments when they borrow funds to pay for various capital improvements.
“Detroit's revenue base was exposed to the pandemic driven economic disruptions. Income taxes dropped because of nonresidents working remotely and wagering taxes were halted as casinos closed,” the Moody’s report said. “Despite those pressures, Detroit posted its sixth consecutive operating surplus in fiscal 2021 and is on pace for another strong year in fiscal 2022.”
The report also highlights the City’s diversifying economic base and strengthening job growth. “Detroit is poised to further expand its employment base with General Motors Company, Ford Motor Company, Stellantis N.V. and a number of auto suppliers making major investments in the city that are creating thousands of jobs. Detroit is also a logistics hub, a position that will be bolstered by a second international crossing that is being constructed, the Gordie Howe International Bridge. Huntington Bank, which recently absorbed Chemical Bank and TCF bank, is making Detroit its commercial banking headquarters with a new 20-story building that is under construction.”
Moody’s indicated several key factors that led to the rating upgrade:
The Moody’s report also cited the City’s early management response that mitigated pandemic losses and Detroit’s favorable revenue trajectory, noting that, “The city is well poised to further strengthen its finances over the next two fiscal years.”
Moody’s indicated that factors which could lead to a future upgrade include:
City of Detroit Chief Financial Officer, Jay Rising says “Moody’s upgrade is an acknowledgement of the hard work done to restore the City from bankruptcy.” “We know we have more work ahead of us and we are confident we will overcome the challenges to the City’s credit posed by risks with future pension funding,” said Rising.
Moody’s rating is based on economic and demographics measures, as well as possible notching factors as defined by the US Local Government General Obligation Debt methodology. The full report can be found below.
On February 18, as part of the City of Detroit’s regular biannual Revenue Estimating Conference process, the City and its partners presented an update on the Detroit Economic Outlook for 2021-2026 and revised economic and revenue forecasts for the remainder of fiscal year 2022 and for fiscal year 2023 through fiscal year 2026. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available to be budgeted for the next four years. Following today’s presentations, the Revenue Estimating Conference will convene next Friday, February 25, for discussion and action on the proposed forecast.
Detroit Economic Recovery Faster than the State Overall
The Detroit Economic Outlook for 2021-2026, reports that “Detroit’s economy continues to recover from the COVID-19 recession despite the resurgence in new caseloads.” The forecast predicts a faster recovery for Detroit than the State overall. Resident employment will recover to pre-pandemic levels by the end of 2022. Meanwhile, jobs at establishments within the city boundaries will recover by early 2023. The City’s economy continues to grow through 2026 with blue-collar jobs leading the way. These job gains are driven by major City-led projects, such as the Stellantis and General Motors automotive plant expansions and Amazon’s new distribution center. The forecast is prepared by the City of Detroit University Economic Analysis Partnership, which is a collaboration of economic researchers at the City, Wayne State University, Michigan State University, and the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan.
Revenue Outlook Continues to Improve
The City’s revenue outlook continues to improve following two challenging fiscal years of revenue losses driven by the pandemic. Recurring City revenues are forecasted to exceed pre-pandemic levels in the current fiscal year ending June 30, primarily due to stronger income tax collections and the implementation of internet gaming and sports betting last year. Income taxes continue to drive revenue growth in future years, in line with the City’s economic recovery and despite an ongoing loss from nonresidents expected to continue working remotely through hybrid work models. All other revenues are expected to see stable but more modest growth.
The ongoing pandemic and supply chain issues remain substantial risks to the economic and revenue forecasts presented today. Future gaming behavior, and potential substitution effects, remain a risk as well. However, the City’s ongoing efforts to attract major employers and provide Detroiters with opportunities for good-paying jobs provide potential revenue upside to the forecast. Proposed increases in State Revenue Sharing and other funding in the State Budget provide potential upside as well.
“Our economy is continuing to recover from job losses related to the pandemic as we’ve seen 80% of resident employment return in 2021 with steady growth projected and we’re beginning to see more fruit from economic development in the City of Detroit. Blue collar jobs are leading the recovery and in fact, exceeding pre-pandemic levels as we see growth in all jobs particularly related to development efforts by Amazon, GM’s Factory Zero and Stellantis’ Mack Assembly complex. Still, as we anticipate modest revenue growth in future years, we will maintain fiscal responsibility in our budget to ensure we achieve a balanced four-year financial plan,” said City of Detroit Chief Financial Officer, Jay Rising.
Revenue Estimating Conference Results
The City presented FY2022 General Fund recurring revenues projected at $1.087 billion for the current fiscal year ending June 30, up $23.8 million (2.2%) from the previous conference estimate in September 2021. The increase is driven by stronger income tax collections and State Revenue Sharing from sales taxes. New internet gaming and sports betting taxes were already added to the forecast in September 2021. In addition, the City is projecting nearly $50 million in non-recurring revenues this year. General Fund recurring revenues for FY2023, which begins July 1, are now forecasted at $1.147 billion, an increase of $60 million (5.5%) over the revised FY2022 estimates. The projected increase is driven by income and wagering taxes, as the local economy continues to recover and as on-site gaming activity returns to pre-pandemic levels. The conservative General Fund revenue forecasts for FY2024 through FY2026 show continued, but modest, revenue growth of around 2% per year on average. Once approved next week, the estimates presented today will set the revenues for the City’s FY2023 Budget and FY2023 through FY2026 Four-Year Financial Plan. The voting conference principals are Jay B. Rising, the City’s Chief Financial Officer; Eric Bussis, Chief Economist, Director, Office of Revenue and Tax Analysis, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Professor Emeritus, Research Seminar in Quantitative Economics (RSQE), Department of Economics, University of Michigan.
Please see link of the recorded Revenue Estimating Conference and PDFs of slide presentations below.
Prop N Neighborhood Improvement Bond Program Named Midwest Deal of the Year by Bond Buyer
This recognition distinguishes the City of Detroit’s Neighborhood Improvement Bonds as an outstanding achievement in municipal finance in the Midwest Region
The voter-approved $250 Million Proposal N Neighborhood Improvement Bond program designed to remove blight throughout the City has completed 780 demolitions and stabilized 232 salvageable homes
The goal of the bond-funded program is to demolish 8,000 blighted homes and stabilize thousands of more homes
The City of Detroit’s 2021 Neighborhood Improvement Bonds have received the Bond Buyer’s Midwest Deal of the Year Award. Detroit’s 2021 Bonds were distinguished for the innovative financing of urban blight remediation projects and for their “Social Bond” label which attracts ESG (Environmental, Social and Governance) focused investors. This award comes a year after over 70% of Detroit voters approved Proposal N (Neighborhood), a $250 Million comprehensive plan to address vacant houses through preservation and demolition.
“This recognition by Bond Buyer is significant as we continue to transform the City by removing blight from neighborhoods. We appreciate the honor as it highlights the uniqueness of our Neighborhood Improvement Bond program and its tremendous impact that will be felt for years to come,” says Jay Rising, City of Detroit, Chief Financial Officer.
Detroit’s Neighborhood Improvement Bond program is groundbreaking because after completing the demolition of over 15,000 blighted properties with Federal Hardest Hit Fund (HHF) dollars, the City innovatively pursued municipal bonds to continue funding urban blight removal. This is one of the very few examples—if any—of municipal bonds being used for blight remediation. As a result, the City is now able to reach every neighborhood, whereas the HHF dollars could only be used within the HHF-defined boundaries. The goal is to demolish an additional 8,000 blighted homes and stabilize thousands for future renovation and sale, improving the safety, value, and health of our neighborhoods.
Moreover, the City’s Neighborhood Bond projects are expected to benefit certain targeted populations including minorities and marginalized communities. Of $70 million of bond proceeds awarded thus far under the City’s procurement, 90 percent have gone to qualified Detroit-based companies and 50 percent to black-owned Detroit-based companies.
Since the passage of Proposal N, Detroit’s Demolition Department has completed 780 demolitions, has 2,200 more under contract, and more than 900 in the demolition pipeline. Meanwhile, the stabilization of 232 salvageable homes has been completed, with another 1,800 under contract.
With this recognition, Detroit’s Bond program is among the 10 finalists for Bond Buyer’s “Deal of the Year Award” announced on December 16. Bond Buyer is an independent municipal finance publication that features news, analysis, and data through its website, e-newsletters, alerts, and daily print edition.
DETROIT - On September 15, the City of Detroit held its regular biannual Revenue Estimating Conference to receive an update to the Detroit Economic Outlook for 2020-2026 and approve revised economic and revenue forecasts for the remainder of fiscal year 2022 and for fiscal year 2023 through fiscal year 2026. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available to be budgeted for the next four years.
The Detroit Economic Outlook for 2020-2026, which was previously released in August, reports that Detroit’s employment recovery from COVID is exceeding expectations. The forecast is prepared by the City of Detroit University Economic Analysis Partnership, which is a collaboration of economic researchers at Wayne State University, Michigan State University, and the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan.
Revenue Outlook Improving
The City’s revenue outlook is improving following two challenging fiscal years of revenues losses driven by the economic impact of the pandemic, nonresidents working remotely, and casino closures and capacity restrictions.
The increase is significantly related to the addition of new internet gaming and sports betting taxes, which were launched in late January. These gains will help offset the expected continuation of reductions in City income tax revenues from nonresidents continuing to work remotely through hybrid work models or full-time remote work. Without the new gaming revenue, the City’s revenue forecast would still be below pre-pandemic levels.
The ongoing pandemic and its lasting effects remain substantial risks to the economic and revenue forecasts approved today. However, the City’s ongoing efforts to attract major employers and provide Detroiters with opportunities for good-paying jobs provide potential revenue upside to the forecast as well.
"This increase in our revenue base is evidence of a resilient economy in Detroit. As we implement our plan to invest federal pandemic recovery funds to bolster Detroit’s future and as we maintain financial responsibility for our budget, the City will strengthen its structurally balanced four-year financial plan,” said City of Detroit Chief Financial Officer, Jay Rising.
Revenue Estimating Conference Results
The Revenue Conference reported FY2022 General Fund revenues projected at $1.106 billion for the current fiscal year ending June 30, up to $111 million (11.2%) from the previous conference estimate in February 2021 but up only $10.5 million (1.0%) from pre-pandemic estimates from February 2020.
General Fund revenues for FY2023, which begins next July 1, are now forecasted at $1.118 billion, an increase of $11.7 million (1.1%) over the revised FY2022 estimates. The conservative General Fund revenue forecasts for FY2024 through FY2026 show continued modest revenue growth of around 1.3% per year.
The City will use the estimates approved today to begin developing the City’s FY2023 Budget and FY2023 through FY2026 Four-Year Financial Plan. The conference will meet again to approve revised revenue estimates in February 2022. The voting conference principals included Jay B. Rising, the City’s Chief Financial Officer; Eric Bussis, Chief Economist, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Seminar in Quantitative Economics, University of Michigan.
To review past Revenue Estimating Conference Reports visit Financial Reports under Revenue Estimating Conference Reports section.
On February 16, the City held its regular February Revenue Estimating Conference to receive an update to the Detroit Economic Outlook for 2020-2025 and approve economic and revenue forecasts for the remainder of fiscal year 2021 and for fiscal year 2022 through fiscal year 2025. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available to be budgeted for the next four years.
The Detroit Economic Outlook Update for 2020-2025 was prepared by the City of Detroit University Economic Analysis Partnership, which is a collaboration of economic researchers at Wayne State University, Michigan State University, and the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan. The Update noted that “[t]he COVID-19 recession will have a deep and long-lasting impact on the city of Detroit.”
In its presentation, RSQE noted the dramatic economic impact of COVID-19 upon the City, which saw unemployment rates rise from 8.8% in 2019 to 20% in calendar year 2020. RSQE also noted that this rate has declined in 2021 to a projected 14.3%, but that a return to pre-COVID levels could take until 2025.
“The challenging revenue and economic outlook will require the City to focus on controlling costs, while making targeted one-time investments to protect City residents and support the City’s future,” said Acting CFO Jay Rising. “Detroit and its residents were disproportionately impacted by COVID-19, both personally and economically. What we heard today underscores the need for fiscal relief from Washington to help our residents, businesses, and Detroit weather the remaining life of this pandemic.”
While unemployment rate recovery may be protracted, the City’s total payroll job count and the payroll jobs held by Detroit residents is projected to recover more quickly with pre-COVID 19 levels of total payroll employment returning by 2022 and of Detroit resident employment by 2023.
Despite the pandemic’s impact on Detroit’s economy, RSQE projects a stronger recovery for the city than the state overall because many long-term projects in the city remain underway. These include the Hudson’s Site downtown, Michigan Central Station in Corktown, the FCA assembly complex, the Amazon distribution center at the State Fairgrounds, and the Gordie Howe International Bridge. The City’s conservative revenue estimates exclude the new jobs and investment from these projects, which will provide revenue upside compared to the forecast.
The Revenue Conference reported FY2021 General Fund (GF) and GF-Impact revenues projected at $931.1 million for the fiscal year ending June 30, down $58.5 million (5.9%) from the FY2021 Adopted Budget in April 2020 and down $252.6 million (21.3%) from pre-pandemic estimates in February 2020. Revenue losses are driven by the economic impact of the pandemic, nonresidents working remotely, and casino closures and capacity restrictions imposed in response to COVID-19.
General Fund and GF-Impact revenue for FY2022, which begins July 1, is now forecasted at $1.092 billion, an increase of $161.2 million (17.3%) over the revised FY2021 but still down $103 million (8.6%) from pre-pandemic FY2022 estimates. This FY2022 forecast assumes nonresidents who work in the City will gradually begin returning to City workplaces and casino operations begin normalizing through this summer and fall.
The General Fund revenue forecast for FY2023 increases 5.1% over FY2022 as peak pandemic effects on nonresident remote work and casinos wear off. The conservative forecasts for FY2024 and FY2025 show modest revenue growth around 1.5%. In total, the City’s recurring revenues do not recover to FY2019 levels until FY2024.
The estimates approved today set the revenues for the City’s FY2022 Budget and FY2022 through FY2025 Four-Year Financial Plan. The voting conference principals included Jay B. Rising, the City’s Acting Chief Financial Officer; Eric Bussis, Chief Economist, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Seminar in Quantitative Economics, University of Michigan.
To review past Revenue Estimating Conference Reports visit Financial Reports under Revenue Estimating Conference Reports section.
The City of Detroit’s ambitious project to rehab 8,000 vacant homes and demolish another 8,000 got its first infusion of funds today as the City of Detroit sold the first $175 million in bonds of a planned $250 million neighborhood improvement effort. In November, more than 70% of Detroit voters approved letting the city sell the bonds.
The bond funds will allow the city to begin the process of stabilizing and securing thousands of vacant Land Bank properties until they can be sold for rehab and demolishing houses that can’t be saved. The city plans to go to the market again next year to sell additional Prop N bonds.
Interest among investors was so strong in this series of Detroit Prop N bonds that they could have been sold 20 times over. Specifically, for this $175 million bond sale, there were over $3.4 billion in orders.
“The incredibly strong interest in these bonds is a direct reflection of investor’s confidence in Detroit’s strong financial management and that starts with our Office of Chief Financial Officer,” said Mayor Mike Duggan. “CFO Jay Rising, Chief Deputy CFOs Tanya Stoudemire and John Naglick, and their entire team have done a tremendous job managing the city’s finances to put us in a strong position, now and for the future.”
Currently, contracts for the first 1,380 demolition properties are before City Council awaiting approval. All seven companies selected through the city’s procurement process to perform the work are Detroit headquartered and five of those companies are black owned. More than 51% of the employees doing the demolition work for all seven companies will be verified residents of the city of Detroit.
Strong demand means lower interest rate
The City issued a mix of taxable and tax-exempt bonds that will be immediately spent as the first installment on Proposal N programs. More than 60 institutional investors placed orders on the bonds on Thursday, many of which were repeat investors that purchased the City’s 2020 and 2018 bonds demonstrating their continued support and interest in the City, according to CFO Rising.
That overwhelming level of interest allowed the City to achieve a much lower interest rate than it had initially expected and will translate to much lower repayment costs over time for Detroit taxpayers.
“Investors took notice of Detroit’s steady progress in building financial strength and swiftly responding to the pandemic driven revenue shortfalls. They saw that while the COVID-19 crisis may have slowed this positive trend, it did not reverse it,” said Rising.
The strong market and demand for Detroit bonds allowed the City to secure a 3.36% interest rate, significantly less than city officials had initially anticipated and 1.28 percentage points less than the interest rate received by the City on its last general obligation bond issue in October, 2020. Detroit marketed these bonds with the “Social Bond” designation to attract Environmental, Social, and Governance (ESG) focused investors that are interested in financing socially beneficial projects.
Recent S&P Upgrade set the stage
In bringing Detroit’s outlook to “Stable” two weeks ago, Standard & Poors referenced the City’s strong fiscal management and the vision behind Proposal N: “We view the passage [of the $250 million Proposal N] as significant in that it will further a key component of the administration's long-term vision for strengthening the tax base and do so with a dedicated debt millage as opposed to funding through reserves or the operating budget.”
This is the third time since 2018 that Detroit sold municipal bonds backed solely on the City’s ability to repay. During the prior 20 years, the City could only sell bonds that were either backed by the state of Michigan or with insurance to the bondholder, which greatly added to the cost for the City.
Moody’s has raised the City of Detroit’s credit outlook to ‘positive’ in a report issued today, a move the ratings agency said reflects the improving and strengthening of the city’s financial position.
Detroit last saw an upgrade from Moody’s in 2018, when Detroit was upgraded to Ba3 with an outlook of ‘stable’. Today, the new outlook of ‘positive’, represents that the City has continued moving in the right direction towards financial stability.
“The city's conservative budgeting practices, growing revenues and reduced fixed costs achieved through bankruptcy have led to a rapid rise in financial reserves,” The Moody’s report said, while noting that “social considerations are also material. The city has been able to improve its provision of basic city services to a population that is primarily low income.”
The report also highlights the City’s strengthening job growth and its positive impact on the City’s thriving economy. “The employment trajectory of Detroit is fundamentally improved,” the report noted. “Even before the 2007-09 recession, both Detroit and the State of Michigan continued to lose jobs while the rest of the nation expanded. The story has been different during the current economic expansion, with Detroit and Michigan initially growing jobs at faster paces than the nation.”
Some factors that led to the rating improvement, according to Moody’s:
The Moody’s report also cited the City’s recurring expenses in comparison to revenue over the next six years. “The city projects that recurring expenses will begin to exceed recurring revenue in fiscal 2026. However, we recognize that long-range forecasts typically produce budget gaps and we expect the city can close these gaps with moderate budgetary adjustments,” the report noted.
“It’s gratifying to see Moody’s recognize the fiscal responsibility of City Council and the administration,” said Chief Financial Officer David Massaron. “While we’re making extensive progress, we have to continue to plan for financial contractions and set-aside funds for our pension obligations while making investments that improve quality of life in the City.”
As referenced in the report, “Continuation of positive revenue trends and maintenance of ample reserves will be critical in improving the city's capacity to absorb a scheduled spike in pension contributions in fiscal 2024 and to finance needed capital investments.”
Moody’s rating is based upon economic and demographics measures, as well as possible notching factors as defined by the US Local Government General Obligation Debt methodology. The full report can be found below.
On February 19, 2020, the voting principals of the City’s Revenue Estimating Conference approved economic and revenue forecasts for the remainder of fiscal year 2020 and for fiscal year 2021 through fiscal year 2024. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available to be budgeted for the next four years.
The Revenue Conference reports recurring General Fund revenue projected at $1.073 billion for the fiscal year ending June 30, up $15 million (1.4%) from the FY 2020 Adopted Budget. The increase is driven by a larger than expected Income Tax base following the final FY 2019 results and by increases in State Revenue Sharing.
Recurring General Fund revenue for FY 2021, which begins July 1, is now forecasted at $1.085 billion, an increase of $12 million (1.1%) over FY 2020. The Income Tax forecast, which accounts for most of the increase, assumes national economic growth slows in FY 2021 and FY 2022, consistent with independent economic forecasts. Overall, modest increases are projected from FY 2021 through FY 2024 across the City’s major taxes and other revenues.
Earlier this month, the City of Detroit, in partnership with the University of Michigan, released its first economic forecast for Detroit, which showed ongoing gains in household income, employment, and labor force participation through 2024.
The Detroit economic outlook is strong and property values are rising. Income Taxes are showing growth, but other major taxes are more restrained. Property Taxes are limited by the State Constitution, which protects homeowners by capping increases at inflation. Detroit’s State Revenue Sharing is largely set by the annual State Budget. Wagering Taxes show steady but only modest annual growth.
The conservative revenue estimates approved require the City to focus on controlling costs over the next four years to keep the four-year plan balanced and fund legacy pension contributions that resume in FY 2024.
“While it’s great that the economy continues to grow over the next four years, the City has to do more with less,” says Chief Financial Officer David Massaron. “Economic growth in the City does not directly translate to growth in City revenues. Our relatively flat revenue growth means that the Mayor and City Council must budget responsibly to ensure a balanced four year plan.”
“Now that revenues have been determined, I look forward to working with the Administration and City Council on the approval of our budget and four year financial plan,” says Deputy Chief Financial Officer and Budget Director Tanya Stoudemire.
The estimates approved set the revenues for the City’s FY 2021 Budget and FY 2021 through FY 2024 Four-Year Financial Plan. The voting conference principals included David Massaron, City’s Chief Financial Officer; Eric Bussis, Chief Economist, Michigan Department of Treasury; and George Fulton, PhD, Director Emeritus, Research Seminar in Quantitative Economics, University of Michigan.
As with any economic and revenue forecasts, there are potential risks to the estimates agreed to today, including national economic trends, international economic issues, and significant changes in federal and state policy.
Today, the City of Detroit in partnership with the University of Michigan released its first forecast for Detroit, which showed ongoing gains in household income, employment and labor force participation through 2024. The forecast reports a 1.7% growth rate in employment for 2019, exceeding the 1.0% growth rate of household employment in Michigan overall in that time.
University of Michigan economist Donald Grimes said that labor force participation is expected to rise from 47.3% to 48.5% between 2018 and 2024 as new job opportunities are created from developments such as the FCA Mack Avenue plant and Gordie Howe
International Bridge.
“Bringing new jobs to Detroit and filling them with Detroiters has been a cornerstone of the Mayor’s economic development strategy,” said David Massaron, Chief Financial Officer for the City of Detroit. “This independent forecast validates that strategy as we work to ensure Detroiters have opportunities for good jobs.”
According to the forecast, the city's unemployment rate will continue to fall from 18.7% in July 2013, when the City filed for bankruptcy, to 8.6% in 2019, and to 7.9% by 2023 and 2024, improving faster than the statewide measure.
The forecast was produced by economists at the University of Michigan's Research Seminar in Quantitative Economics, who are part of the partnership with the City of Detroit and economists at Michigan State and Wayne State universities.
While the economic forecast supports positive trends for the City’s income tax revenue, many of the City’s major revenue streams, including property tax and state revenue
sharing, will have constrained growth due to state laws.
"We expect Detroit's ongoing recovery to form a key component of Michigan's economic growth through 2024," said Gabriel Ehrlich, director of RSQE.
"This difference in untapped labor should allow the city to benefit more than the state as
labor markets continue to tighten," said U-M economist Aditi Thapar.
By developing Detroit-specific data, the city government and community stakeholders can quantify local economic conditions and to plan, design, finance and evaluate programs to improve economic opportunities for Detroiters.
"Detroit has vastly improved its financial position and prepared for any future financial hiccups by doubling its rainy day fund," said U-M economist Daniil Manaenkov.
"Despite that progress, Detroit's economy continues to face well-known challenges, including an elevated poverty rate and relatively low educational attainment among its residents."
Among the forecast highlights:
Most of the public economic data used in the first Detroit forecast is only available at the county or regional level. The city’s Office of the Chief Financial Officer and its University Economic Analysis Partnership are working with the State of Michigan’s Bureau of Labor Market Information and Strategic Initiatives to produce detailed payroll employment and wage estimates for the city of Detroit. This effort will provide new insights into the local economy not previously available for use in future forecasts.
City announces partnership with state's top universities to provide economic forecasting specific to Detroit
The Next Step: Detroit Aims to be Free of Residential Blight by 2024
Detroit GO Rating Raised to 'BB-' As Finances Stabilize; Priority-Lien Ratings Lowered To 'BB+' on Criteria Application
New York, May 22, 2018 -- Moody's Investors Service has upgraded the City of Detroit, MI's issuer rating to Ba3 from B1. Concurrently, Moody's has revised the outlook to stable from positive in light of the upgrade. This issuer rating is equivalent to the general obligation unlimited tax (GOULT) rating we would assign to GOULT debt of the issuer, but does not apply to any of the city's $1.9 billion of debt outstanding.
CHICAGO (S&P Global Ratings) April 25, 2018--S&P Global Ratings has resolved its CreditWatch on various Michigan Finance Authority revenue sharing bonds, and on one series of Authority local project bonds (issued for Dearborn Heights), by raising the ratings to 'A+' from 'A'. The outlook is positive. The bonds were all issued on behalf of one or multiple local governments (LGs).
The 'A+' ratings are based on our State Credit Enhancement (SCE) criteria, and reflect the benefit each LG receives from strong Authority (and state of Michigan) oversight as well as the strength and availability of distributable state aid (DSA), which would be diverted to the Authority if a LG cannot make its full and timely debt service payment.
