NEW YORK - Moody's Investors Service said it has downgraded the rating on city of Oakdale, Calif.’s sewer enterprise revenue bonds to Baa1 from A3, affecting $1.6 million in debt.

At the same time, Moody's has assigned the rating a negative outlook. The bonds are secured by the net revenues of the city's sewer enterprise system.

The downgrade reflects the sewer enterprise's weakened financial prospects, despite significant recent rate increases; the enterprise's still very small, unrestricted reserve position, since the rate increases did not generate as much excess revenues as might have been expected; and the continued weakness in the regional economy.

The rating action also takes into account the uncertainty of future financial performance due to lack of financial projections from the city, state loans which will begin to create pressure on operations in the medium term, and possible customer resistance to another substantial rate increase, which may be needed to bolster operations.

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