Moody’s Investors Service downgraded Mercer County, N.J. general obligation debt to Aa2 from Aa1.

Moody’s action Friday affects about $495 million outstanding bonds.

Moody’s took the action because of the county’s shrinking reserves, wrote analyst Vito Galluccio, which put it at a level closer to other Aa2 rated counties.

Mercer County is at the northern end of the Delaware River region of New Jersey. The county includes Trenton and Princeton. It has population of about 367,000.

The county has a large tax base with a strong socioeconomic profile. It also benefits from the presence of large institutions like universities, hospitals, financial and pharmaceutical companies.

As challenges, the county has recently had narrowed financial reserve levels and declining equalized values.

Moody’s has a stable outlook.

“You never want to see a downgrade,” said Mercer County Executive Brian Hughes.

The county needs to either reduce spending or increase revenue and it has some ideas on these fronts, Hughes said. It will be attracting more business at its airport and expects in about 18 months the Amazon web site to open a distribution center in the county. These will contribute taxes to the county.

Standard & Poor’s rates Mercer County AA-plus.

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