NEW YORK - Fitch Ratings said it has downgraded Fresno, Calif.'s implied general obligation (GO) bond rating to A-minus from A, and the Fresno Joint Powers Finance Authority's $167.5 million lease revenue bonds (series 2004A, B, & C; 2006 A; 2008 A, C, E & F; and 2009A) to BBB-plus from A-minus.
Fitch has also revised the city's rating outlook to negative from stable.
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 notes as a key rating driver the city's active management of fiscal performance through interim reporting and fervent public stance on reaching a solution that restores fiscal balance. However, management believes its only practical options for achieving budget balance are through reductions in public employee compensation.
This is a significant challenge given that the largest existing contract offers raises and job protection through 2015 with no formal re-openers.
The city depleted its unrestricted general fund balance in fiscal 2012 and continues to struggle to close ongoing fund balance deficits outside the general fund.
The city has a plan to adequately manage cash flow over the next fiscal year and does not anticipate the need for external borrowing. It has significant resources in enterprise funds that can be used for liquidity. However, these funds cannot be permanently transferred to governmental funds under California law.
The adopted fiscal 2013 budget continues the city's reliance on one time revenues as it has little revenue raising flexibility.
Overall debt is moderate at about 4.9% of assessed value (AV) and is expected to decline gradually as the city has no additional borrowing plans. Other long-term liabilities are manageable and compare favorably to other large cities with fully-funded pensions and an unfunded other post-employment benefit liability equal to about 0.3% of AV.
