SAN FRANCISCO – Standard & Poor’s revised its outlook on San Jose, Calif.’s debt to stable from negative, impacting more than $1 billion of outstanding bonds.

It affirmed its AA-plus long-term and underlying rating on the city’s general obligation bonds, its AA-plus issuer rating, and its AA long-term and underlying rating on the San Jose Finance Authority’s lease revenue debt. S&P also kept its AA rating on the authority’s lease-revenue refunding bonds issued for the city.

The ratings firm said the outlook revision reflects the city’s “very strong” reserves and its efforts to curb spending and it comes ahead of a more than $300 million sale later this month.

“Although we believe that certain portions of the city’s budget will continue to be a challenge, current reserve levels are sufficient to mitigate temporary budget and revenue fluctuations,” Standard & Poor’s analyst Misty Newland said in a statement Thursday. “The outlook reflects our expectation that the city will continue to strive to implement budget strategies that result in structural balance and fiscal stability.”

San Jose has struggled amid falling revenues caused by the recent recession and has worked to lower costs including passing a pension reform measure last year, which has run into union opposition.

The city has also had to work through the dissolution of its redevelopment agency.

“We are very pleased that S&P has seen that we are working very hard to put our fiscal house in order,” said Julia Cooper, San Jose’s director of finance, in a phone interview Friday. “It really highlights that we are working on building reserves, cutting expenses and dealing with pension issues. Those are all good things that we continue to work on.”

The new outlook comes ahead of an approximately $330 million, two series bond sale scheduled for May 15 that will refund outstanding debt sold to finance construction of San Jose City Hall and a garage, Cooper said.

San Jose’s direct debt includes $461 million of GO bonds and $788 million of general fund-supported obligations, while its redevelopment agency-related debt was $2.4 billion at the end of fiscal 2012, according to the firm.

The ratings reflect San Jose’s broad and diverse economy, above-average income levels, moderate debt, and a very strong general fund helped by city management’s recent efforts to adjust spending amid a “challenging revenue environment,” according to S&P.

Fitch Ratings rates the city’s GOs at AA-plus, and Moody’s Investors Service at Aa1.

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