BOSTON -- Moody's Investors Service downgraded Hartford to A1 from Aa yesterday because of concerns about the economic strength of businesses headquartered in the Connecticut capital as well as the city's dwindling tax base.

The rating covers Hartford's upcoming $16 million general obligation bond sale as well as the city's $104 million of outstanding debt. The city plans to sell the GO bonds on May 25 by competitive bid.

"This downgrade is not meant to signal a fault of the city's administration," said William Hogan, an assistant vice president at Moody's. "Rather, this is more our concerns over the shape of the insurance and financial service industries that are in the city."

Hartford is home to some of the nation's largest financial services providers, including numerous insurance companies, and benefits from a rich tax base of industrial and commercial property. But the city's population is much poorer than surrounding suburban areas. Consequently, it is burdened by increasing demands for education reform and other public services.

Hogan said that one of Moody's concerns was that in the city's planned fiscal 1995 budget, state aid to Hartford will represent a larger part of the city's overall revenues than property taxes.

The city has managed to remain a strong credit over the past few years without having to raise taxes. But Hogan said it is unlikely that the city will be able to continue with that practice.

"If the city doesn't raise taxes during this next fiscal year, it will be the fifth year in a row," Hogan said. "They might have to do that this year."

The economy of Connecticut has been severely harmed in the recent recession. Cutbacks in military spending have cost the state thousands of jobs.

Despite these problems, though, Connecticut is still ranked number one in per capita wealth.

Last week, Fitch Investors Service affirmed its AA rating for Hartford, but revised its outlook to negative from stable.

Standard & Poor's Corp. rates the city AA, but according to the agency's ratings desk, the rating is under review.

"We still consider the city to be an above-average credit in the New England region," said Maryellen Reynolds, a senior analyst at Moody's. "But the concerns about the increase that state aid plays in the budget is somewhat inconsistent with what we like to see in the top-tier credits."

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