Moody's Investors Service said it has downgraded to Baa2 from Baa1 the rating on lease revenue bonds Series 2012 and to Baa2 from A3 the rating on pension obligation bonds, 2005 Series A, Series B of Inglewood, Calif.

Approximately $59 million in pension obligation bonds and $31 million in lease supported obligations have been affected.

The city's weak but stabilizing financial operations weigh heavily on the rating. General fund operations are out of balance and a significant amount of additional cuts are need to restore balance.

Absent such cuts, the city will continue to struggle to balance its budgets for the near term.

The relative size and diversity of the city's tax base and the city's key location in the heart of Los Angeles area economy are the credit strengths underlying these ratings. The city's population appears to have benefited from the size and diversity of the region's economy by making measurable gains in income levels relative to other cities in the state and the nation according to the 2010 census results.

Despite these gains, the city's unemployment rate remains chronically high, which weighs on the ratings. Also factored in the ratings are the relatively high direct debt level and manageable lease burden.

The three notch rating distinction between the city's Baa2 lease rating and pension obligation bond ratings and the A2 issuer rating represents the less secure pledge for these debt service payments and reflects the additional risk to bondholders from the city's financial, operational and economic condition over the more secure GO pledge.

Under California law, a city's GO pledge is an unlimited ad valorem pledge of the city's tax base. The city must raise property taxes by whatever amount necessary to repay the obligation, irrespective of its underlying financial position.

A lease pledge is a contractual obligation, on parity with a city's other unsecured obligations, backed by the all of the city's available financial resources. The notching between the issuer rating and lease rating could widen if the city's general fund financial position deteriorates and thus further limits the already narrow lease pledge.

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