June 17, 2014 / 8:42 PM / 3 years ago

UPDATE 1-S&P revises Michigan's credit rating outlook to stable

(Adds Michigan tapping reserve fund for Detroit bankruptcy, other rating factors)

June 17 (Reuters) - Standard & Poor's Ratings Services on Tuesday revised the outlook on Michigan's AA-minus general obligation credit rating to stable from positive due to a projected fall in state revenue.

State officials last month lowered the revenue forecast for the current and next fiscal year by $617 million because of weaker income tax collections and other factors.

"The outlook revision reflects recent softening in projected fiscal 2014 revenues, expected slow economic growth, and anticipated declines in general fund and budget stabilization reserve fund balances in fiscal 2014 because of weak April income tax receipts, budgeted general fund drawdowns, and a lower-than-expected balance in the state's budget stabilization reserve fund," S&P credit analyst David Hitchcock said in a statement.

Under legislation sent to Governor Rick Snyder earlier this month, the state would tap its reserve fund for nearly $195 million for a key component of Detroit's plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history. Michigan would replace the money over 20 years from funds it receives from a national settlement with U.S. tobacco companies.

"The state (budget stabilization fund) appropriation to the Detroit bankruptcy settlement also raises questions as to potential future state contributions to other distressed localities and school districts, and we will monitor the uniqueness of this event," S&P said in a report.

The credit rating agency also said that Michigan's current strong cash position, good budget management and moderate debt burden were offset by the cyclical nature of the state's economy, which remains tied to automobile production. The state also could face a large retroactive public pension contribution if the Michigan Supreme Court ultimately upholds challenges to recent pension reforms, S&P noted. (Reporting by Karen Pierog; Editing by James Dalgleish and Jonathan Oatis)

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