Detroit's credit rating upgraded to highest level since 2012

The Detroit skyline is pictured from a newly redeveloped 12-story Woodward Avenue high rise saved from demolition.(Tanya Moutzalias | MLive Detroit)

DETROIT, MI - Nearly three years after it emerged from bankruptcy, Detroit's financial outlook is positive.

Its credit rating has been upgraded, for the second time in three years, and could see more gains in the next one to two years, the city and Moody's Investors Service announced Friday.

A healthy fund balance and liquidity provide resources to invest, job growth is fueling rising income taxes and "very conservative" fiscal management is intent on keeping expenses below revenue to address long-term pension funding, the service listed as credit strengths.

Moody's, which gauges future creditworthiness of securities, gave Detroit a B1 rating, below investment grade, but five notches higher than Detroit's rating in 2013, when it filed for bankruptcy, a process that is to eventually save the city $7 billion in debt. Detroit has not had a higher rating since March 2012.

"When we exited bankruptcy, many questioned whether Detroit would be able to manage its finances going forward," Mayor Mike Duggan said in a statement. "Two credit rating upgrades in less than three years and a positive outlook from Moody's show just how fast our financial turnaround is succeeding."

Challenges remain. Detroit's socioeconomic profile is "very weak" and the city could be vulnerable to economic cycles given its low industrial diversity in the labor market, according to Moody's. Debt and pension burdens remain high. "Escalating fixed costs will consume recent financial gains if revenue growth does not persist."

To earn further upgrades, the city must see sustained growth and demonstrate change in demographic patterns "that more rapidly propels economic recovery, employment diversification and income growth."

The news comes as the city prepares to invest $125 million in bond funds to revitalize and improve commercial business corridors, such as Livernois, West Vernor and East Warren avenues, the city reported.

"Moody's report illustrates that we have strengthened the City's financial position, have strong financial planning and budgeting practices, and are making the right decisions to ensure the City's short- and long-term fiscal sustainability," John W. Hill, Detroit's chief financial officer said in the statement.

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