Moody's Investors Service said it has downgraded to A3 from A2 the issuer rating of the city of Fresno, Calif.

Moody's has also downgraded the city's pension obligation bonds to Baa1 from A3 and the city's lease revenue bonds to Baa2 from Baa1. The outlook on the ratings remains negative.

The downgrade reflects the city's exceedingly weak financial position and uncertainties imbedded in the city's adopted budget, most notably $12 million of budget gap closing solutions.

These solutions continue to rely on labor concessions, which have proven to be difficult to achieve and will likely lead to internal deficit borrowing, thereby pushing the available general fund balance further into negative position.

The ratings also reflect exposure to a fragile local economy and limited ability to absorb additional budgetary pressure.

The city's high fixed cost burden and increasing general fund subsidy for underperforming enterprise assets further constrain its flexibility.

The A3 rating incorporates the city's favorable position as the economic center of the San Joaquin Valley, comparatively resilient assessed valuation and well-funded pension system.

The city's moderate post-employment benefit obligation is also a positive consideration.

The negative outlook reflects the likely emergence of a general fund budget gap in the current fiscal year, the possibility of continued economic weakness and the city's now limited options for managing continued financial pressures given its very weak financial reserves.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.