CHICAGO — Moody’s Investors Service this week downgraded Toledo, Ohio, warning that falling income tax revenue has led to repeated general fund shortfalls despite attempts to stabilize financial operations.

Moody’s cut its rating to A2 from A1 on $153 million of outstanding general obligation limited-tax debt, and downgraded $34.4 million of outstanding non-tax revenue debt to A3 from A2. The outlook is stable at the lower ratings.

Standard & Poor’s rates the city A with a negative outlook. Fitch Ratings does not maintain a rating on the city.

Fitch earlier this week downgraded the Toledo City School District to A from AA-minus. Fitch’s move, which included an outlook revision to negative, was due in part to the district’s failed bid for an income tax hike in the early May primary.

Moody’s downgrade comes as Toledo prepares to enter the market with $16.9 million of GO refunding bonds and $14.2 million of GO tax anticipation notes.

Like other Ohio cities, Toledo remains heavily dependent on economically volatile income tax revenue, which provides roughly 70% of the city’s general fund revenue.

“Any volatility in this revenue stream has a significant impact on the city’s year-to-year operations,” analyst Sarah Engle wrote in a report on the downgrade. “The maintenance of adequate reserves to offset economic declines is critical to the stabilization of financial operations.”

The city remains a hub of northwest Ohio but has been hit hard by the declining manufacturing industry, and particularly by the troubles of General Motors and Chrysler, which both idled their Toledo-based plants in 2008.

Fiscal relief could be on the horizon, analysts said.

Toledo officials, led by new Mayor Mike Bell, have recently introduced a number of measures meant to stabilize financial operations.

Voters in November will consider allowing the city to stop paying part of employee pension costs and require workers to contribute to their health care. Toledo is also one of four Ohio cities that will get a casino, which will mean new jobs and revenue.

Moody’s said its stable outlook reflects its expectation that Toledo will continue to stabilize throughout the year and begin building budget reserves in the next few years.

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