Standard & Poor's downgraded Fresno, Calif.'s issuer rating to BBB from A due to its continued weak finances.
"The lowered ratings reflect our view of persistent general fund imbalances despite recent workforce reductions and modest revenue improvement starting in fiscal 2011," S&P analyst Misty Newland said in a statement Monday.
Fresno, the fifth largest city in California with a population of more than 500,000, has struggled like many cities in the state's Central Valley with high unemployment and low revenues.
Newland said the city's budget options have narrowed due to size of previous employee cuts, closed public safety contracts, low general fund balances and weak cash flow. S&P also cut its long-term and underlying rating on the city's lease revenue bonds to BBB-minus from A and left a negative outlook.
The rating agency said the city's budget problems may impede its future without strong revenue growth, which appears unlikely for now.
At the end of June, the Fresno City Council approved a budget that closed an estimated $16 million shortfall using one-time fixes, an increase in its sales tax forecast, and assumed concessions from unions that have yet to be nailed down.
In late July, Moody's Investor Service dropped Fresno's issuer rating to A3 from A2. It also cut the city's pension obligation bonds to Baa1 from A3 and its lease revenue bonds to Baa2 from Baa1.
In early July, Fitch Ratings downgraded Fresno's general obligation bonds to A-minus from A and its lease revenue bonds to BBB-plus.