Moody's Investors Service Tuesday downgraded Lackawanna County, Pa., five notches to a speculative-grade Ba3 from Baa1.
The action affects $202.7 million of outstanding general obligation bonds, and the rating remains under review for downgrade or withdrawal, Moody's said in a statement. The county's outstanding GOs are secured by an unlimited property tax pledge.
Lackawanna County envelops Scranton in northeast Pennsylvania.
The downgrade reflects "significant and rapid deterioration in the county's financial position, resulting in growing fiscal distress that will require deficit financing to cure a steeply growing negative general fund balance following several years of persistent operating deficits," Moody's said.
The county faces additional risk in its ability to refinance outstanding GO tax and revenue anticipation notes maturing in December 2011, requiring market access to secure deficit financing necessary for repayment of the Trans.
Moody's cited insufficient information in considering a withdrawal, saying Lackawanna County has a history of delayed financial reporting and inaccurate estimates, including severe negative discrepancies between its unaudited reporting of fiscal 2009 results and audited financial statements released in late July 2011.
County officials expect to release fiscal 2010 audited financial statements next month. "Further delay in the audited results, or inability of the county to verify cash balances as the Tran repayment date rapidly approaches, is likely to result in Moody's withdrawal of the rating due to lack of information," the rating agency said.
"We anticipated this result as part of our long-term reinvestment initiative in Lackawanna County and see it as a temporary condition," Thomas Durkin, county chief financial officer and director of administrative services, said in a statement.
Over the last four years, he said, Lackawanna has pared expenses by $17 million and cut the work force by 32%, among other measures. The next part of the plan, he added, is to refinance unfunded debt and implement the recommendations from the county's finance advisory board.
"We have addressed the expense side of the ledger. Now we are cleaning up unfunded debt and will be looking to address the revenue side with revenue enhancements," said Durkin, who expects to seek an upgrade next year, "once we can demonstrate that we have completed our reinvestment plan."
Moody's two weeks downgraded Collingswood, N.J., to Ba1 from A1, citing real estate-related enterprise risk. Collingswood officials criticized Moody's for the decision.
