DALLAS -- The city of Wayne, Mich. was dropped lower into junk territory by Moody's Investors Service.

Moody's Investors Service downgraded the city's issuer rating by two notches to Ba3 from Ba1 and limited tax rating fell to B1 from Ba2. The outlook remains negative. The city has $28.1 million of rated general obligation limited tax bonds outstanding.

"The downgrade of the city's issuer rating reflects a very stressed financial position given an ongoing structural imbalance with few options to make timely expenditure cuts or revenue enhancements," Moody's analysts wrote Tuesday.

The city is struggling because of the recent failure of a tax levy vote and it has limited flexibility to raise revenues elsewhere. In early August, it requested a state financial review but last week the state said the city retains options to address its structural gap such as making further reductions to retiree healthcare coverage and so direct state oversight is not warranted.

Moody's said that based on the state review, it concluded that the city has sufficient liquidity to cover operations this year but will fall short next year without operating adjustments.

The rating agency placed the rating under review for possible downgrade in August.

The rating also reflects Wayne's modestly sized tax base with significant concentration in auto manufacturing, a weakened socioeconomic profile, very high leverage and high fixed costs.

On Monday, the city council met to discuss selling the city's recreation center and retiring approximately $2.8 million of bonds sold through the local building authority that are tied to the center.

In 2015 the council handed operations to the privately operated HYPE athletics.

Under the agreement, the city pays HYPE $275,905 per year for five years. The city spends about $680,000 annually on bond payments for the center.

City officials are also considering a fourth attempt at getting voters to pass a levy increase to fix its structural imbalance as well as additional reductions to retiree healthcare benefits. The city began charging retirees 30% of their healthcare premiums in September, yet savings from the change have fallen short of what's needed to offset the current operating gap.

Wayne's request for financial review followed the Aug. 2 rejection of the city's proposal to join a suburban authority and levy a tax to fund fire and rescue services.

Wayne voters rejected the proposal to join the South Macomb Oakland Regional Services Authority, which was created by the cities of Eastpointe and Hazel Park in 2015. They likewise turned down a millage proposal that would have raised approximately $5 million to help the city's strained liquidity. The additional revenue would have enabled the city to stabilize its general fund balance to $2.9 million, according to Moody's.

The city of about 17,000 people is in Wayne County, about 20 miles west of the county seat of Detroit.

Wayne has struggled to rein in costs. Expenditures have exceeded revenue by roughly $2 million over the past few years. The city balanced its books for the current fiscal year which started July 1 by draining other funds, including its internal service fund and a retiree healthcare trust.

Officials report closing fiscal 2016 on June 30 with near depletion of the OPEB trust and a $400,000 draw on general operating reserves. The city expects to draw another $1.6 million of general fund balance in fiscal 2017 and estimates likely depletion of fund balance by December 2017.

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