DALLAS -- Battle Creek, Michigan's general obligation bonds and issuer default rating took a one notch downgrade from Fitch Ratings, which cited expectations that the city expenses will exceed its revenue growth.
Fitch lowered the rating to AA-minus from AA on Wednesday. The downgrade impacts $61 million of bonds rated by Fitch.
The rating agency updated its US tax-supported rating criteria which it uses to assigned issuer default ratings last April. The revised criteria treat the economy as the foundation for analyzing a credit rather than as a stand-alone factor.
Fitch said that annual costs of funding pension and retiree healthcare liabilities for Battle Creek, which are already elevated, are expected to increase. The rating agency said that carrying costs for debt service, pension and other post-employment benefits, primarily retiree health, are at more than 20% of general fund expenditures.
"The IDR and GO rating are sensitive to the city's budgetary flexibility including its ability to minimize operating expenditure growth given the expected increases in carrying costs for debt service, pension and OPEB coupled with limited revenue growth," said Fitch.
Battle Creek is in south Central Michigan, 42 miles southwest of Lansing. The city's population has remained relatively stable over the past three decades with approximately 52,000 residents.
Unemployment rates are in line with national levels but wealth levels, including per capita personal income rates, are below both the state and national levels.
Income taxes account for approximately 35% of general fund revenues followed by property taxes at 30% and intergovernmental revenue at 20%. Revenues for the decade through 2016 were nearly flat.
Kellogg Company one of the largest taxpayers and employers in the city recently announced plans to cut 250 jobs in Battle Creek.
