Moody’s Investors Service last week downgraded East Orange to A2 from A1 and assigned a negative outlook after the city experienced three consecutive years of declining fund balances.
Fund balances have dropped to an unaudited 1.4% of current fund revenue in fiscal 2010 from 9.3% in fiscal 2007.
East Orange has $88.2 million of outstanding debt, according to Moody’s.
“The negative outlook is due to Moody’s expectation that the city will remain challenged to restore structural balance over the near term, placing further pressure on the city’s already limited reserve and cash position,” Moody’s said in a report.
Challenges for the city include underperforming property-tax revenue and interest on investments, growing retirement benefit costs, and tax appeals.
“Moody’s further believes that these pressures, in combination with future state aid cuts and the city’s narrow reserves, will make it unlikely that the city’s financial position will improve materially over the medium-term,” according to the rating report.
Unemployment in East Orange was 14.1%, as of August, Moody’s said. New Jersey’s rate was 9.6%, according to U.S. Bureau of Labor Statistics.
The city plans to develop a multi-year budget and implement formalized fund-balance policies, Moody’s said. East Orange has a large, $3.5 billion tax base. New construction and redevelopment plans could add to the city’s tax base, including about $16 million in fiscal 2010, although ongoing tax appeals may cut that revenue growth.
