SAN FRANCISCO —  Moody’s Investors Service Wednesday downgraded San Francisco’s general obligation rating to Aa2 from Aa1, mainly due to the city’s weak short-term finances.

“The downgrade primarily reflects the city’s very narrow financial position and the minimal prospect of material improvement in the near term,” Moody’s said in a statement. “The city ended fiscal 2009 with a balance sheet that was weaker than at any time in the prior 10 years.”

The downgrade comes as the city is expected to issue $80 million of GOs early next month.

The rating agency noted the city’s fiscal 2010 and 2011 budgets relied heavily on one-time solutions, including draws on reserves, to close big budget gaps, which likely means little improvement in audited results.

For example, Moody’s said the city’s $3 billion fiscal 2011 budget used 53% of one-time measures to address a $483 million deficit.

It also said San Francisco’s audited general fund reserve position is extraordinarily thin.

Moody’s added that the defeat of city pension and health care cost control measures on this year’s ballot likely point to little near-term fiscal improvement.

Additionally, Mayor Gavin Newsom’s departure to become California’s lieutenant governor may leave a wide leadership gap at a time when the city faces large holes in its budget, Moody’s said.

Moody’s has also revised it outlook for San Francisco to stable.

The agency pointed to the city’s track record for strong budget control and its position as a large, world-renowned city with a diverse economy.

It also said San Francisco’s conservatively structured moderate debt burden has been calculated into the rating.

The city’s current financing is secured by an unlimited property tax pledge, meaning the city has the power and obligation to levy property taxes in an amount sufficient to pay the principal and interest on bonds when due, according to Moody’s.

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