A rating downgrade demonstrates that Fresno, Calif., city employee unions need to be more flexible at the bargaining table, said city manager Mark Scott.

“We simply can no longer afford to extend employee compensation packages that were agreed to when economic times were considerably better than they are today,” Scott said at a City Hall news conference, joined by Mayor Ashley Swearengin and several City Council members.

Fitch Ratings downgraded Fresno’s general obligation bonds to A-minus from A and its lease revenue bonds to BBB-plus.

“The downgrade reflects Fitch’s heightened concerns about the city’s ability to achieve fiscal stabilization given the adoption of a fiscal 2013 budget that failed to achieve important cost-saving measures,” Fitch analyst Andrew Ward said in a report Monday.

The Fresno City Council approved a budget last week that closed an estimated $16 million shortfall using one-time fixes, an increase in its sales tax forecast and assumed concessions from unions that have yet to be bargained for.

“Given the severe financial challenges that we’re facing, the reality is our employee compensation programs need to cost us less,” Scott said.

“To do that, we clearly need cooperation from our employee bargaining groups if we’re going to operate in a sustainable manner and bring our city back to fiscal health,” he said.

Fitch analysts said the city depleted its general fund reserves during fiscal 2012 and continues to struggle to close ongoing deficits outside of the general fund.

However, the rating agency said Fresno has a plan to adequately manage its cash flow over the next fiscal year and doesn’t plan to buffer its needs with additional borrowing.

The report noted that the city has a lot of resources in its enterprise funds that could be used to help with cash flow, but the funds cannot be permanently transferred to governmental funds under California law.

“Rating agencies have consistently expressed concern about our compensation packages and their overall impact on the city’s long-term financial health,” Scott said. “Our bond rating will not be upgraded until this issue is resolved and we build back operating reserves.”

The city will continue to address the issue as bargaining units’ contracts open, Scott said.

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