CHICAGO — Moody's Investors Service Jan. 30 downgraded by two notches Williston, N.D., located in the heart of the state's historic oil boom, and assigned a negative outlook, warning that the city faces significant infrastructure needs among other challenges.

The downgrade pushed the city's general obligation bonds to Baa2 from A3.

The ratings firm also downgraded the city's sales tax bonds to Baa2 from A3 and its water debt to A3 from A1.

The lower GO rating reflects a weaker-than-expected financial performance in 2012, narrow reserves, and a history of weak management and late financial reporting, analysts said.

"The negative outlook reflects our expectation that the city's financial position will remain challenged over the near- to mid-term given current  reserve levels and significant infrastructure needs stemming from the ongoing oil exploration activities in the Bakken Shale formation," Moody's said in a news release.

North Dakota is in the midst of the largest oil boom in its history thanks to the Bakken oil field. The boom has meant an influx of money to the state, but many local governments, especially those located in the western part of the state, have lobbied lawmakers for years for more money to handle the stress of the sudden population growth.

Williston's credit strengths include a rapidly growing tax base and additional state revenue under a new bill, according to Moody's. Challenges include a tax base that relies heavily on the oil industry, a high debt burden, and weak management.

The negative outlook on the city's water debt reflects analysts' concern that the oil growth will "further pressure the city's and the system's finances and infrastructure, affecting overall credit quality over the near- to mid-term given major infrastructure needs and a history of unwillingness to adjust user fees."

The city has $4.7 million of outstanding GO debt, $150,000 of water revenue debt, and $1.9 million of sales tax bonds.

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