NEW YORK - Moody's Investors Service said it has downgraded to A2 from A1 the underlying rating on the town of Saugus, Mass.'s $22.4 million of outstanding general obligation bonds and assigned a negative outlook.

The bonds are secured by the town's general obligation limited tax pledge, as debt service is subject to the limitations of Proposition 2 ½.

The A2 rating reflects the town's weakened financial position and narrow reserves, its stable tax base located outside of Boston, and its manageable debt burden.

The negative outlook reflects Moody's expectation that the town will be challenged to restore structurally balanced operations and rebuild its fund balance and cash position over the medium term. The current level of reserves provide management limited financial flexibility to offset budget variations and growth over the next several years.

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