Moody’s, the Investment Rating Service, downgraded the credit rating of the city by three notches, lowering it to A2 or roughly four levels above a ‘junk’ rating. Also affected in the latest assessment was the City’s lease revenue bonds, which were lowered three notches to Baa1, and pension obligation bonds, which dropped three notches to A3.
Adding insult to injury was the downgrading of the city’s long term financial outlook from “stable” to “negative.” The announcement affects $477 million worth of rated debt.
“The negative outlook reflects the city’s narrow financial position and limited prospect for improvement in the near-term, amid the ongoing risk for added financial pressure from a weak local economy,” read the report. “The city’s depleted reserves limit its financial flexibility and ability to absorb additional budgetary pressure. Like all California cities, Fresno’s ability to raise revenues is highly constrained; its primary budget balancing option is cost reduction. However, with services already significantly reduced, further cuts could prove more difficult.”
However, Moody’s report offered the city a roadmap to improved credit ratings. In the opinion of analysts at Moody’s, the city needs to improve its reserves, structural operating procedures, liquidity, and reduce its dependence on subsidies.
“The downgrade reflects the city’s materially weakened financial position, exposure to a fragile local economy and limited ability to absorb additional budgetary pressure. The city’s high fixed cost burden and increasing general fund subsidy for underperforming enterprise assets further constrain its flexibility. The A2 rating incorporates the city’s favorable position as the economic center of the San Joaquin Valley, comparatively resilient assessed valuation and well-funded pension system.”