Moody's Investors Service said it has downgraded the city of Santa Fe, N.M.'s general obligation bond rating to Aa3 from Aa2, affecting $17.1 million of Moody's rated debt.

At the same time, the Aa3 senior and A1 subordinate gross receipts tax (GRT) ratings have been confirmed, affecting $55.7 million in outstanding debt. The city's water utility system revenue bonds have also been confirmed at Aa2, affecting $38.8 million in Moody's rated debt. The outlook on the city's debtportfolio has been revised to stable.

The ratings on Santa Fe's GO, GRT, and water system debt were placed on review for downgrade in April due to the city's large adjusted net pension liability (ANPL) relative to its rating category.

The GO rating downgrade to Aa3 from Aa2 reflects Santa Fe's large ANPL relative to its peers and rating category, which could present budgetary challenges and financial pressures over the long term. Increases in employer contributions could further stress the city, which already has high fixed costs as a percentage of the annual budget.

The Aa3 rating also incorporates the city's large tax base anchored by governmental entities, favorable wealth indices, and adequate financial reserves. The Aa3 also reflects the city's modest debt burden.

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