Moody's Investors Service Tuesday downgraded Stockton's issuer rating to Baa1 from A3 as the city's fragile budget continues to face challenges.

"The downgrade and negative rating outlook reflect the fact that the city's precarious financial position is being severely challenged by recent events," Moody's said in the report. "These events threaten to increase general fund costs to levels beyond what the city's carefully balanced budget could afford."

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