(Bloomberg) -- Once-bankrupt Detroit has won its first investment-grade rating after an upgrade by Moody's Ratings, marking a major step for the city, which has long struggled with high unemployment and elevated poverty rates.
The credit rating firm raised the Michigan city's debt two notches to Baa2 from Ba1 on Friday, citing its “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.”
Detroit has come a long way from its Chapter 9 bankruptcy in 2013, when it was reeling from debt and pension obligations and the erosion of its signature auto industry. In recent years, it's embarked on projects like the rehabilitation or demolition of blighted housing stock and delivered consistent balanced budgets.
“The city's tax base has doubled in the past five years and continued growth will be fueled by ongoing development and recent appreciation of residential values,” Moody's said in a report.
Earlier this month, Mayor Mike Duggan proposed a $2.8 billion budget for the next fiscal year that includes $189 million for its department of transportation and a $40 million increase in pension funding.
“It has been 10 years of hard choices and sound financial management by these great leaders,” Duggan said in a statement. “No one in 2014 would have predicted Detroit returning to investment grade in less than a decade.”
Despite the upgrade, Detroit still faces plenty of challenges, including a declining population, not to mention its continued strong dependence on the auto manufacturing industry, noted Moody's. The city has about $2.8 billion in total municipal bond debt outstanding this fiscal year ending June 30, according to Moody's.
Read More: Detroit Marks 10th Anniversary of Bankruptcy With Bond Sale
The city's tax base and revenue growth is expected to absorb rising costs associated with salaries, benefits and services over the next 12 to 18 months, said Moody's, which has a positive outlook on Detroit.
The outlook “is a strong indication that if we stay on track, Detroit could well see another upgrade in 2025,” Jay Rising, Detroit's chief financial officer, said in a statement.
The only other major firm that rates the city's debt, S&P Global Ratings, has had a BB+ rating — one step below investment grade — since April 2023.
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