LOS ANGELES — Moody's Investors Service affirmed Fresno's issuer rating at Baa1 Sept. 30, but revised the outlook on its Fresno ratings to positive from stable, signaling that the city's ratings could be upgraded in the next 12-14 months.

Fresno's Baa1 issuer rating is currently the city's only investment grade rating from Moody's. That rating would apply to the city's general obligation debt if it had any, which it does not.

The rest of the city's $300 million in debt is rated junk by Moody's. The lease-backed obligations are rated Ba2; Fresno's 2006A Convention Center bonds, 2002 Pension Obligation Bonds and 2002 Judgment Obligation Bonds carry a Ba3 rating.

"The change in outlook fundamentally reflects the recent positive changes in the city's tax base and local economy, contributing to increases in property and sales taxes, the city's most important revenue sources," according to Moody's ratings report.

A recovering economy and careful management are enabling the city of 508,453 to post surpluses and slowly rebuild fund balances after years of sizable operating deficits, according to Moody's credit focus report.

"If the trend persists, Fresno is poised to recover from the lingering after-effects of the recession within three to five years," Moody's analysts said.

California's fifth largest city by population, Fresno's agricultural-based local economy was one of the hardest hit in the state.

"While Fresno's unemployment rate is typically higher than the US and California, the gap widened considerably during the recession," analysts said. That gap has closed recently, but Moody's said unemployment in the city rose to 16% at its peak and has hovered at 10% for almost seven years.

Foreclosure rates have also dropped and the city has gained 8% in single-family home prices on a year-over-year basis during fiscal 2013-14.

The three key factors contemplated in the Moody's report are that the city's hard-hit regional economy is bouncing back; its financial position is weak, but stabilized; and its high fixed costs including pension, retiree healthcare and debt service obligations remain manageable. That trio consumes roughly a quarter of expenditures. Its Other Post-Employment Benefits and pension liabilities are fully funded, but remain long-term risks as the OPEB liability in 2013 at $115 million ate up 44% of general fund revenues, Moody's said.

The city's gross direct debt burden of 1.6% and overall debt burden of 3.5% are considered low for a city in its rating category, Moody's analysts said.

The debt consists entirely of fixed-rate lease, pension and judgment obligation bonds. The POBs comprise 37% of its overall debt.

"The economy's diversity is helping the city emerge from the effects of the recession at a rapid pace, though a struggling agriculture sector still plays an important part," Moody's analysts said.

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