BRADENTON, Fla. — Standard & Poor's downgraded Petersburg, Va.'s general obligation rating four notches to BBB from A-plus, citing weak budgetary flexibility and liquidity.
The BBB rating affects $27.8 million of outstanding GOs as of June 30, 2013. The outlook is stable, S&P said June 19.
The city also has $6.78 million of qualified zone academy bonds and $7.2 million in loans, notes, and capital leases.
"The downgrade is based on the new local GO criteria published Sept. 12, 2013, our view of the city's very weak budgetary flexibility and weak liquidity, which have deteriorated significantly over the past few years, and our expectation that flexibility and liquidity will remain weak at least in the near term," said analyst Danielle Leonardis.
The rating also reflects the city's strong debt and contingent liabilities position with no major budgetary pressures from pension costs, Leonardis added.
The city's reserves for fiscal 2013 were negative $6.77 million, or negative 8.4% of expenditures, and do not include adjustments for "doubtful" reimbursements to the general fund from mass transit and golf course funds.
"We consider these reimbursements as unlikely to be repaid, as both funds continue to rely on annual support for operations from the general fund," said Leonardis.
Although the city's unassigned general fund balance was $1.72 million in the 2013 audit, the city has no available cash recorded in the general fund and was owed $2 million from the golf fund and $6.5 million from the mass transit fund, according to S&P.
"Nearing the close of fiscal 2014, management estimates very modest surplus of approximately $107,000, which we believe could mean that flexibility will not deteriorate further," said Leonardis.
Petersburg has issued GO bonds once since 2004, and has several bank purchase bonds outstanding.
Despite weak performance in 2013, "we believe the general fund's performance is likely to modestly improve over the next several years as the city has now adopted its third consecutive balanced general fund budget [with] fiscal year 2015 that does not include the use of any remaining reserves," said Leonardis.
The city plans to issue about $23 million of additional in the near term increasing net direct debt to 81% of total governmental revenue, S&P said.
The rater said Petersburg's economy is weak, though it does have access to the Richmond area employment base.
The city is 25 miles south of Richmond, and has a population of about 32,000. Unemployment was 7.8% in 2013.
Moody's Investors Service assigns a rating of Aa2 to the city's 2004 GOs.
