Standard & Poor’s has revised its outlook on San Francisco’s general obligation bonds to negative from stable because of ongoing budget problems.

In a report last week, analyst Misty Newland attributed the negative outlook to persistent budget imbalances and a reliance on reserves to offset shortfalls.

The agency also affirmed its AA rating on the city’s GO bonds and its AA-minus long-term and underlying rating on the city’s certificates of participation and lease revenue bonds.

San Francisco had a $36 million rainy-day fund in fiscal 2010, which represents merely 1.6% of general fund costs. The reserve fund is expected to fall to $25 million by fiscal 2012, Newland said in the report. She noted that the city’s three-year forecast includes budget deficits that will be partly offset by funds and reserves.

San Francisco expects to use the extra money in the general fund to reduce its deficit to $306 million in fiscal 2012 from $405 million, the report said.

“In our opinion, relief from expenditure pressure will depend, in part, on the city’s ability to negotiate permanent reductions in salaries and benefits,” Newland wrote.

The report said salaries and fringe benefits will account for 50% of general fund costs over the next three years, with retirement benefits and labor agreements representing the largest cost increases.

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