A New Haven finance official acknowledged budget-deficit concerns after Moody’s Investors Service issued the second downgrade to Connecticut’s second-largest city in two months.

Moody’s dropped the Elm City to A2 from A1 late Monday.

Fitch Ratings in April downgraded New Haven to A from A-plus. Standard & Poor’s rates the bonds A-minus. All three maintain a negative outlook.

 “We have seen both the state and federal government receive downgrades recently. The move by Moody’s was not terribly surprising and is a fair read of fund balance deterioration,” city budget director Joe Clerkin said in a statement after Moody’s lowered New Haven’s general obligation bond rating.

New Haven, with about 130,000 residents, anticipates a $1 million to $3 million general fund deficit due to a reduction in state aid and payments in lieu of taxes. Unbudgeted expenses related to Hurricane Sandy and winter storms also strained the budget, Moody’s said.

“The city needs to ensure that we move forward with labor agreements that the taxpayers can afford, that are fair to employees and that are mindful of current market conditions while continuing to develop our education, research, bio and life science economy,” Clerkin added.

Police and fire overtime spending are on the rise, as it was in fiscal 2012 which New Haven ended an $8 million deficit.

The Board of Aldermen on May 28 approved a $497 million budget, up 2.3% from the previous fiscal year but down slightly from the $503 million Mayor John DeStefano had proposed on March 1. The budget includes a tax rate increase of nearly 5% and does not use reserves.

According to Moody’s, a $3 million sale of High and Wall streets to Yale University helped reduce the projected deficit. The streets, pedestrian-only after a 1990 agreement between the city and the Ivy League school, run through the heart of Yale’s campus. The aldermen approved the sale in a 21-8 vote two weeks ago while police removed angry protesters from City Hall.

Moody’s expects New Haven to remain heavily leveraged. Its adjusted debt burden, at 7.7%, is well above the median level for comparably sized cities, the rating firm said.

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