Moody's Investors Service said it has downgraded to A2 from A1 the rating on the city of New Haven, Conn.'s outstanding general obligation bonds, affecting approximately $510 million of outstanding debt.

The outlook remains negative. The city's outstanding general obligation bonds are secured by the city's unlimited tax pledge.

The downgrade reflects the city's narrowed financial position resulting from a sizeable operating deficit in fiscal 2012, as well as another expected deficit in fiscal 2013. The A2 rating also incorporates the city's sizeable tax base with below average socioeconomic indices and an strong institutional presence.

The negative outlook reflects the possibility of further credit weakening should the city be unable to restore fiscal stability in the near term and begin to augment its narrow reserve levels. The outlook also incorporates the city's high debt burden and sizeable Internal Service Fund deficit.

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