Moody’s is a bond credit rating business that provides research on commercial and government bonds.
In a press release issued last week, Moody’s cited the city's rapidly declining reserves as the rationale behind the downgrade.
Moody’s downgraded the General Obligation (GO) rating of the City of Burbank to A1 from Aa3. Bonds rated Aa are judged to be of high quality whereas bonds rated A are judged to be upper-medium grade. Both Aa and A rated bonds are deemed low credit risk. The report states the city has $11.5 million of outstanding GO debt, of which $9.5 million is rated by Moody's.
Moody's also revised the outlook on the bond rating to negative.
"The negative outlook is based on the expectation that reserves will continue to decline given ongoing operating shortfalls and the imperative that the city come into compliance with statutorily required pension contributions or risk the loss of state shared revenues," according to the report.
In the press release, Moody’s characterized the city's creditworthiness strengths and challenges as follows:
- Home-rule government with broad revenue raising flexibility
- Modest debt burden
- Multi-year trend of significant operating deficits with additional budgetary pressure arising with the need to increase pension contributions prior to fiscal 2016
- Significant full valuation declines in recent years
Source: Moody's Investor Service press release