Fitch Ratings last week downgraded Kalamazoo, Mich.'s implied rating to AA from AA-plus, saying the city faces a myriad of challenges.
"The downgrade reflects a decline in the city's overall financial flexibility and continued challenges in restoring structural balance in the face of tax base deterioration, state revenue declines, own-source revenue limitations, and forward spending pressures," Fitch said in the downgrade report.
The ratings agency kept the outlook at negative on the general obligation bonds.
Kalamazoo, population of 74,000, is considered the economic hub of the southwest region of the state.
Fitch also cut $17 million of capital improvement limited-tax GO bonds to AA-minus from AA-plus and $23 million of building authority limited-tax GO debt to AA-minus from AA-plus.
On the positive side, the city has a modest debt burden and overfunded pensions, Fitch said. Management is in the midst of a strategic plan to restore structural balance to the budget, analysts said. "Absent organic growth in revenue Fitch thinks that the city will remain challenged in achieving consistent positive margins given limited spending and revenue flexibility," the report said.