Moody’s Investors Service last week downgraded the city of Reading to Baa2 from Baa1 as the city plans to issue $36.7 million of general obligation debt this week. The action affects $68.6 million of debt. Reading has nearly $220 million of long-term debt outstanding. The downgrade is due to historical budget deficits and limited liquidity.

A year ago, the city entered into Pennsylvania’s distressed municipalities program, called Act 47, which places local governments under state oversight to help cities and towns regain fiscal strength.

The city will borrow $20 million to refinance 2002 capital appreciation bonds and pay a termination fee of approximately $1.6 million on a forward starting swap, according to Michael Vind, managing director at Financial Solutions LLC, the city’s outside financial adviser. Another $16.7 million of borrowing will be used as deficit financing to help boost the city’s general fund, repay its sewer fund, and make pension contribution payments, according to Moody’s

The city’s multi-year recovery plan includes income-tax hikes until 2014, implementation of a non-resident commuter tax, increased transfers from parking and water authorities, and a 10% property-tax hike in 2014. Reading is also cutting its payroll and reducing expenditures.

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