Moody’s Investors Service has downgraded Palm Bay, Fla.’s issuer rating to Aa3 from Aa2.
The rating reflects Moody’s credit assessment of Palm Bay’s implicit general obligation credit strength. The city has no GOs outstanding.
Moody’s also affirmed the A1 rating on Palm Bay’s local option gas tax revenue bonds.
The downgrade to Aa3 is based on the decrease of reserves and depletion of cash as well as significant and ongoing declines in the city’s taxable values over the past several years. The rating further incorporates a moderately-sized tax base and average wealth and income levels.
The A1 gas tax rating reflects the still-solid debt service coverage levels and adequate legal provisions.
The city’s financial position declined in both fiscal 2009 and fiscal 2010, decreasing general fund balance to $5.8 million, or 9.4% of revenues, down from $12.9 million, or 22.1% of revenues, in fiscal 2006. The fiscal 2010 deficit was driven mostly by revenue from franchise fees coming in under budget.
The city expects to partially replenish its $909,000 fund balance appropriation in fiscal 2011, finishing the year with $5 million in general fund balance, close to its target of 10% of expenditures. The city is not expected to appropriate fund balance in fiscal 2012 and is considering several cost-saving measures, including layoffs and furloughs.