Moody's Investors Service downgraded to A1 from Aa3 Canton's general obligation limited-tax debt.
The outlook remains negative, even at the lower rating. The downgrade affects $26.4 million of debt.
Canton, which is located about 30 miles south of Akron, has suffered from falling revenues that have led to a narrowed financial position and limited cash reserves, Moody's said. The negative outlook reflects the city's shrinking tax base, high rate of unemployment, and expected future declines.
The city has seen an ongoing decline in income tax revenue — its main revenue source — and a declining tax base for the last five years, analysts said.
"Given the continuation of challenging economic and fiscal climates, the city's reliance on economically sensitive income taxes, and the lack of an immediate plan to build reserves to satisfactory levels, we expect the city's financial operations will remain pressured in the near to medium term," wrote analyst Andrew Van Dyck Dobos.
On the bright side, Canton's employment base is somewhat stabilized by a large health care industry, and several companies have recently announced they plan to move to the city.
