Moody's Investors Service said it has downgraded to A3 from A2 the city of Pearl, Miss.'s general obligation rating, affecting $27.2 million of debt.
The bonds are general obligations of the city and are secured by an unlimited tax pledge. $18.7 million in additional debt of the city is also factored into the rating, but not rated by Moody's.
The downgrade reflects the city's continued deterioration of general fund liquidity and reserves resulting in a negative general fund balance and cash position at fiscal 2013. The recommendation also reflects a stable tax base and healthy economy within the Jackson (city of) metro area. The negative outlook reflects uncertainty around the city's ability to rebuild reserves.
The negative outlook reflects stress on the city's finances resulting from drawdowns of reserves to cover debt service, capital expenses associated with the water and sewer enterprise and other capital investments leaving the city with very limited financial flexibility.
Although the city has increased both its levy for debt service and water and sewer fees and reduced expenses, a stable outlook will require that those steps lead to significant improvement in general fund cash reserves.
