CHICAGO - Fairfield, Iowa's rating sank to the lowest investment grade at Moody's Investors Service, which warned it could drop further over operating deficits that have strained the town's balance sheet.
Moody's downgraded the rating on June 10 to Baa3 from Baa2 and said the outlook remains negative. The move impacted $3.6 million of outstanding debt.
Fairfield's operating deficits have depleted its general fund reserves, Moody's said. The city is also struggling due to its limited financial flexibility as it currently levies the maximum allowable for its general operating and emergency property tax levies.
"The rating additionally reflects the city's extremely high fixed costs as well as the likely issuance of new short term debt to finance improvements to a recreation center," Moody's said. "The rating further considers the city's small but stable tax base, its elevated debt burden, and below average socioeconomic indices."
Moody's said the city's prospects are dim as analysts expect the city's overall liquidity may decline significantly according to plans to draw down enterprise fund cash balances for necessary sewer system upgrades. "While city management is in the early stage of identifying new expenditure reductions, the outcome of these efforts remains uncertain," Moody's added.
Fairfield is located in southeastern Iowa and has about 9,447 residents.