Genesee County, Michigan, drew an upgrade from Moody’s Investors Service over its healthier reserves, action that also benefits the Karegnondi Water Authority pipeline’s debt as it’s ultimately backed by the county.
Moody’s raised the county’s general obligation limited tax and issuer ratings to A1 from A2 Monday, impacting $578 million of mostly self-supporting GOLT debt outstanding. The county doesn’t have any unlimited tax GOs outstanding. The outlook is stable.
The KWA’s original $220 million of bonds, sold in 2014 to provide the bulk of financing, were also raised by Moody’s to A1.
“We view these bonds as ultimately backed by the GOLT pledge of the county and we include them in our view of the overall credit quality of the county,” said lead analyst David Strungis.
“The issuer rating was upgraded to A1 because the county has sustained the recent improvement in its reserve position and will likely continue to hold strong balances over the next several years because of its improved budget management practices, a recent windfall of federal stimulus and steady tax base growth,” Moody’s said.
The county’s high other post-employment benefits burden offsets the strengths as it elevates total leverage for combined debt and retirement liabilities. “Management is currently exploring options to reform its OPEB plans and is in discussions with its retiree groups,” Moody’s said.
Genesee County is located in southeast Michigan about 60 miles northwest of Detroit. Flint, the county seat, and is home to about a quarter of the county’s residents.
The county and Flint backed the KWA bonds sold in 2014 that provided financing for a $290 million pipeline to carry Lake Huron water to Flint and other Genesee County communities, which would provide them with a more affordable water supply. Genesee was viewed by investors and rating agencies as the ultimate security as the structure required the county to step in to cover Flint’s share if needed. At the time, Flint was fiscally distressed and under state oversight.
A contamination crisis drew national attention sparking criticism of local, state and federal authorities; criminal charges against two former emergency managers and former Gov. Rick Snyder; and a state contribution of $600 million to settle allegations over the state’s failures to intervene sooner.
The crisis occurred after the city dropped its contract with Detroit for treated water and turned to the Flint River. The city failed to treat the water properly leading to lead contamination from the pipes.
The lead poisoning resulted in long-term injury to residents, especially children whose developing brains are considered most at risk to damage from lead poisoning. The crisis is also blamed for a 2014-15 Legionnaires’ disease outbreak in the Flint region that led to the deaths of at least 12 and sickened another 79 individuals.
Flint ended up switching back to treated Lake Huron water from the Great Lakes Water Authority, or GLWA, which by then had absorbed Detroit’s water system, but it remained on the hook for bond repayment of its share of the project and a later new money and refunding issue.
Under its GLWA contract, Flint receives credits that in effect cover its debt service obligations in exchange for GLWA’s receipt of the rights to Flint’s share of KWA water. The GLWA agreement also creates some additional measures to protect the county’s liquidity position in the event that it would be responsible to pay debt service for Flint.
The pipeline became operational in 2016.
Michigan attorney general’s pursuit of criminal charges against Snyder and eight other officials, including two former emergency managers, suffered a setback at the hands of the state’s high court last month.
The court invalidated last year’s grand jury indictment because it came from a sole Genesee County Circuit Court judge. The opinion came in an appeal filed directly with the high court by one of the officials charged in a fight against lower court rulings allowing the case to proceed. All of those charges can now seek dismissal at the local level.
Attorney General Dana Nessel’s Solicitor General Fadwa Hammoud and Wayne County Prosecutor Kym Worthy announced the criminal charges early last year.
The Seventh Circuit Genesee County chief judge had appointed Judge David J. Newblatt to serve as a one-man grand jury and the charges stemmed from evidence he received and evaluated from prosecutors. The attorney general’s office said it would continue to pursue the cases.
Gov. Gretchen Whitmer in 2020 announced a $600 million state settlement financed with borrowing. The settlement brought to about $1 billion the money Whitmer and Snyder committed to the city to cover compensation, lead pipe replacement, water filters, and healthcare.