CHICAGO - Moody's Investors Service revised its outlook to negative from stable on Aaa-rated Indianapolis, saying the city faces a structural imbalance and that it's uncertain if leaders will be willing to raise revenue or impose cuts.

The outlook revision comes as the city prepares to go to market with $17 million of revenue bonds that Moody's rates Aa2, two notches off of its Aaa rating on the city's general obligation bonds.

"Assignment of the negative outlook reflects the city's projected structural imbalance across its operating funds in fiscals 2014 and 2015, driven by escalating costs under a somewhat restrictive revenue raising environment," Moody's analyst Tatiana Killen wrote in the report.

"The outlook reflects the uncertainty of management's willingness to implement material revenue enhancements and/or expenditure cuts to offset the use of reserves for operations."

A downgrade could come if the city continues to have a structural imbalance, if there is a material weakening of the city's operating reserves or liquidity, an increase in debt levels or if the tax base declines, Moody's said.

Indianapolis has $160 million of Aaa-rated GO bonds and $903 million of Aa2-rated bonds backed by the city's moral obligation pledge.

Moody's said tax increment finance revenues continue to cover debt service on the moral obligation bonds, and that bondholder security is enhanced by the city's moral obligation to replenish the debt service reserve fund on the bonds to the minimum level if required.

The city plans to use proceeds from its upcoming bond sale to refund outstanding debt and finance capital projects. The Indianapolis Local Public Improvement Bond Bank is the issuer.

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