Another Drop in Stockton’s Credit Rating

Stockton’s credit rating is once again downgraded by Wall Street for the third time in the present year. With this, Moody’s Investors Service warns that another lowering of the ratings can happen again anytime soon.

The reduction in rating shows investors that Stockton is becoming a financial risk.

Stockton’s struggling budget comes with the bad economy, high rate of unemployment and increasing number of home foreclosures.

This year, Stockton started with an Aa3 rating. This showed investors very minimal risk to repay the debt it took out in the past years amounting to $137.7 million. The debt was used to build infrastructures and repair damaged parks, roads and neighborhoods.

In the months of January and June this year, reductions in ratings already occurred. In the recent announcement, the city’s credit ratings moved to Baa1, a signal to investors that the city is moderately risky.

The rating downgrade moves the city four levels below its state in the beginning of the year. It is still three steps away from reaching junk status.

Moody’s, an agency that analyzes and provides credit ratings also lowered two of the individual bonds of Stockton. One is a taxable pension obligation bond. The other is a lease-revenue refunding bond.

The entire downgrade occurred after the city accepted a balanced budget by removing $37 million from its general fund. In the fiscal year’s first quarter, the city needs to cover for a budget shortfall amounting to $4 million.

The city told investors in the past month that it may not settle its debt on a redevelopment project they did in 2006. This is based on filed documents at the Securities and Exchange Commission of the United States.

Susan Mayer, the city’s Chief Financial Officer, said that the lower rating did not come as a surprise. She said that this simply shows the challenges that have already been shared with the investment community and the elected leaders.

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