Moody’s Investors Service has downgraded Stockton’s issuer rating to A1 from Aa3 because of its tight budget position.
The agency has a negative outlook on the city.
“The city’s financial position is narrow,” Moody’s analyst Dari Barzel said in a recent report. “The city’s largest budgetary challenge is gaining control of its public safety expenditures which represent about 80% of its budget.”
In May 2010, Stockton officials declared a fiscal emergency due to a $23 million budget gap it was facing for 2011. That allowed it to renegotiate its agreements with fire and police. The city is still negotiating with the unions.
Voters also approved a measure in November that gave officials voluntary, nonbinding mediation so the city had more flexibility in union negotiations.
The San Joaquin Valley city, which has a population of about 290,000, faces an unemployment rate of around 19%, compared to the state level of 12%. It has also suffered through the major declines in its housing market.
Wealth levels are well below average, according to Moody’s. Per-capita income is 67% of the state median.
Moody’s said the city’s debt levels are somewhat high but manageable, though its variable-rate bonds pose a potential risk.