Moody’s Cuts Ailing Costa Mesa

Moody’s Investors Service has downgraded to Aa2 from Aa1 the financially strapped city of Costa Mesa, Calif.

The rating agency said the downgrade reflected the city’s weak finances due to a dramatic decline in recent years of its tax revenues and its low reserves.

Moody’s also cut the rating on the city’s general fund lease obligations to A1 from Aa2.

The rating change impacts $40 million of the city’s outstanding debt.

Costa Mesa started fiscal 2011 with a $9.5 million deficit but expects to end the year the with only a $1.5 million gap due to cost cutting.

The city made national headlines in March when its City Council green-lighted a plan to send pink slips to half of its workers in an effort to plug the remaining budget hole.

The main concern prompting the council’s move appears to be Costa Mesa’s $130 million in unfunded pension liabilities, mostly tied to public safety workers.

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