Moody’s Investors Service last week downgraded Lafayette to A1 from Aa3, affecting just under $5 million of outstanding general obligation debt and $25.6 million of outstanding lease rental revenue bonds. Moody’s also dropped to $5.1 million of economic development income-tax supported bonds A3 from A2 issued by the city.

On the bright side, analysts said the city enjoys a large tax base of $2.9 billion, which is expected to remain stable due to growth in the local industrial sector and the presence of Purdue University in nearby West Lafayette.

Lafayette faces a higher-than-average debt burden of 4.5% but most of that debt is due to be repaid within 10 years, said analysts. All of the city’s debt is in fixed-rate mode.

Like other local governments in Indiana, Lafayette is expected to face challenges over the next few years from declining property tax revenue due to a new state law. City officials have said they expect to lose at least $11,000 in revenue in 2010 and $340,000 in fiscal 2011 due to the property tax cap.

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