Fresno, California’s fifth-biggest city, had its debt ratings cut three steps by Standard & Poor’s, citing concerns that budget constraints may limit the municipality’s ability to manage projected multi-year deficits.
The city’s long-term and underlying rating, including for pension bonds, was cut to BBB-, lowest investment grade, from A-and its issuer grade was dropped to BBB, second lowest, from A, S&P said today in a statement. The credit outlook is negative.
“The city’s budget flexibility has become increasingly narrow given the level of previously enacted workforce reductions, closed public-safety contracts, low general-fund balances,” and weak liquidity, Misty Newland, an S&P credit analyst in San Francisco, said in a statement.
Fresno, a city of about 501,000 some 200 miles (320 kilometers) north of Los Angeles, is the latest California municipality to confront budget deficits as the lingering effects of the longest recession since the Depression and the housing-market meltdown continue to erode property and sales-tax revenue. Soaring pension and health-care costs have forced job and service cuts by cities trying to stay solvent.
California’s Stockton, San Bernardino and Mammoth Lakes have sought bankruptcy protection in the past two months.
Fresno’s budget constraints may linger without “strong” revenue growth, which is “unlikely given current indications that the city will continue to experience a slow economic recovery,” according to the statement from New York-based S&P.
Taxable pension bonds sold by Fresno in January 2002 and maturing in June 2022 traded to yield 5.9 percent today, up from 5 percent on June 26, data compiled by Bloomberg show.
Moody’s Investors Service cut its issuer rating on Fresno to A3 and its pension bonds to Baa1 last month, citing deteriorating finances. Taken together with other actions, the changes affected $462 million of debt.
Fresno, in the agricultural San Joaquin Valley, is the largest inland city in California.