Fitch Ratings late Friday downgraded New Haven, Conn.’s general obligation bonds to A from A-plus, affecting about $510 million of general obligation debt.
Its outlook remains negative.
Fitch cited weakened financial flexibility, state budget uncertainties and above-average debt ratios and high future retiree costs.
“The rating downgrade reflects the city’s limited financial flexibility as reserve levels remain weak. A current year deficit is projected, further weakening liquidity,” Fitch said in a statement.
Messages seeking comment were left with Mayor John DeStefano and city controller Mike O’Neil.
Fitch said in its report that New Haven, Connecticut’s second-largest city with a population of 130,000, experienced a general fund operating deficit after transfers of $8 million, or 1.9% of spending, the previous fiscal year.
Although the city has historically funded all of its pension actuarially required contribution, or ARC, pension and other post-employment liabilities are high.
According to Fitch, the most recent actuarial valuation as of June 30, 2011, shows the funded levels for its two single-employer defined benefit plans at 46% for general and 50% for police and fire, assuming an investment return of 8.25%.
“Adjusting to Fitch’s more conservative 7% discount rate, the funded levels are a low 40% and 44%, respectively,” the rating agency said.
Fitch added that New Haven’s economy benefits from the presence of Yale University, Yale-New Haven Hospital and other educational and health-care institutions.
Moody’s Investors Service and Standard & Poor’s rate the city’s GO bonds A1 and A-minus, respectively, both also with negative outlooks.
