What effect does Detroit's bankruptcy filing have on the surrounding counties -- Oakland and Macomb -- which have a coveted AAA bond rating.
Oakland County Executive L. Brooks Patterson says he has been expecting Detroit's Chapter 9 filing for some time now.
"There are two schools of thought. I'm the optimist, so I'll go for the second school. The first school is that Moody's and Standard and Poor's a number of years ago said if Detroit goes bankrupt we're going to drop your bond rating from AAA to AA+ which will cost you someplace between $2 million and $3 million more in interest payments as you fund these projects," Patterson said. "The other school says, well, Detroit, unless they shed all that debt through the Chapter 9 filing, you really are out of the woods."
Oakland County's bond rating would remain intact. Patterson hopes it's going to be that latter school of though.
The bottom line is Oakland County has been a stand-alone economy for decades. Does the county run the risk of taking a hit simply due to proximity? The short answer is yes.
Macomb County is in the same boat. It also has that coveted AAA bond rating which means not only do financial entities want to loan the county money but it also gets the best terms available.
Macomb County Executive Mark Hackel also has been anticipating Detroit's Chapter 9 filing.
"Well for Macomb County, without question, it's going to be a concern for us. Is this going to reduce our bond rating? We've had a AAA bond rating for quite some time and because of our finances and having our finances in order we're fortunate, we're one of three counties in the state that share that AAA bond rating, in fact our neighbors, Oakland County, have that same bond rating. Is is going to impact us? We hear that it may. It may reduce us to a AA+ or whatever it might be that they decide to look at, but I got to believe that they should take a close look at the fact that now there is certainty in the city of Detroit," said Hackel.
That may be the biggest sell of all. Finally, reduce the crushing debt and bring some real financial stability to Detroit. For the Oakland and Macomb executives, that is a selling point. They're ready to fight any blowback from this filing.
"We'll go to Wall Street and say, 'Hey, no, no, no. Look at us versus Detroit. We're not Detroit. We may be a neighbor, but we're a stand-alone economy," said Patterson.
What's the likelihood both counties escape without a downgrade? Better than 50/50.