Moody's Investors Service has downgraded Sleepy Eye's $12.8 million of general obligation debt one notch to A1 due to its declining financial position.

The city, located in Brown County in southwestern Minnesota, has seen a decline in its general fund balance, though it remained fairly healthy in 2009 at $2.07 million, which is 46% of general fund revenue.

"The A1 rating also reflects the city's very limited $138 million tax base, which is well below medians for Aa3 municipalities and high debt burden which is expected to increase given future debt plans," Moody's wrote.

As a result of conservative budgeting, the city expects to bolster the general fund balance by $100,000. In fiscal 2011, management anticipates a cut in state aid by $300,000.

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