Stockton, California, Downgraded by Moody’s on Costs Threatening Budget

Stockton, California, which declared a fiscal emergency in May, had about $137.7 million of debt downgraded by Moody’s Investors Service because of rising costs that threaten the city’s balanced budget.

Stockton’s “precarious financial position is being severely challenged” by events that increase general-fund costs beyond what it can afford, according to a statement today by New York-based Moody’s.

It cut the city’s issuer rating one level to Baa1, its third-lowest investment grade, from A3. It also downgraded taxable pension obligations and lease-revenue bonds. The outlook remains negative, meaning more cuts may come.

Stockton, an agricultural center about 80 miles (130 kilometers) east of San Francisco, warned last month it may default on redevelopment-agency debt issued in 2006 because of a revenue shortfall.

Debt service will exceed revenue by about $858,000 in the North Stockton project, according to an Oct. 12 filing with the U.S. Securities and Exchange Commission. The city plans to use a $137,249 cash surplus held by the North Stockton trustee, according to the filing.

Standard & Poor’s downgraded Stockton one level to A-, its seventh-highest grade, from A in July, citing revenue declines, according to a report.

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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