Moody's Investors Service said it has downgraded to B1 from Ba2 the rating on the city of Le Center, Minn.'s general obligation debt.

The B1 rating applies to $7.3 million of outstanding general obligation unlimited tax debt. The city has $12.3 million of outstanding general obligation debt, $7.3 million of which is rated by Moody's. The outlook remains negative.

The bonds are secured by the city's general obligation unlimited tax pledge. The B1 rating reflects the city's heavy reliance on cash flow borrowing from a local bank to fund ongoing operations, including regularly-scheduled general obligation debt service payments; limited financial flexibility; narrow cash balances following multiple years of aggressive budgeting assumptions and annual operating deficits; a small, limited tax base that has experienced significant valuation declines; and a high debt burden.

The B1 rating also reflects management's lack of forward-looking financial planning and imprecise cash management as evidenced by cash overdrafts in several funds.

The negative outlook reflects our view regarding the city's preparedness to pay general obligation debt service on time and in full, given the credit profile described above and the very narrow window of time between receipt of cash flow borrowing proceeds and debt service due dates.

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