March 20 The Detroit City Council's approval
this month of a special fund to cover pension payments is a
positive credit move, although concerns remain over the
availability of money to cover retirement benefits, Moody's
Investors Service said on Monday.
The council on March 10 approved Mayor Mike Duggan's
proposal to deposit $377 million into a trust fund by the end of
fiscal 2023 to help Detroit cover higher-than-expected pension
payments starting in fiscal 2024.
"This credit positive action will improve the city's
capacity to meet the upcoming pension contribution hike,"
Moody's said in a report.
Detroit, which has a junk rating of B2 from Moody's, exited
the biggest-ever municipal bankruptcy in December 2014 with the
assistance of money from a so-called grand bargain that included
donations from foundations and others to help cover pension
Moody's said Detroit could become financially stressed once
money from the trust fund and from the grand bargain is depleted
in the 2030s. The credit rating agency also said planned
deposits into the pension trust fund could be hampered by
lower-than-expected revenue growth.
"Because future (trust fund) deposits are not legally
mandated, they could be an attractive cost-cutting target to
close potential budget gaps," Moody's added.
Detroit's court-approved bankruptcy exit plan had projected
city pension payments to spike to $111 million beginning in
fiscal 2024 after years of minimal or no payments by the city.
But a subsequent actuarial analysis pegged the payment spike at
$200 million or more.
The bankruptcy allowed the city to shed about $7 billion of
its $18 billion of debt and obligations. Since its bankruptcy
exit, Detroit's finances have been subject to a state oversight
(Reporting by Karen Pierog in Chicago; Editing by Matthew