Standard & Poor's Corp. upgraded Bridgeport, Conn., to BB from CCC on Friday in response to an improved fiscal outlook and the city's decision to abandon its ground-breaking test of the nation's municipal bankruptcy laws.
The rating, which applies to $68.5 million of outstanding general obligation debt, was also removed from CreditWatch, where it was placed last year with developing implications. The long-term outlook is now positive.
A $7 million refunding issue the city is preparing won an AA rating, based on the strength of a special state guarantee that funds a reserve for the bonds. The new bonds are rated the same as the state because Connecticut is legally bound to appropriate money to replenish any deficiency in the fund.
Standard & Poor's said that although Bridgeport has made progress addressing the fiscal imbalance, that precipitated its 1991 Chapter 9 bankruptcy filing, "there are many issues facing the city that will challenge long-term fiscal stability."
The rating agency noted that Bridgeport's residential base I mostly low-income, and the unemployment rate has risen to more than 10% as the city struggles with the national recession.
"In addition, the city's political environment, including a two-year election cycle for the mayor and council, has been a contributing factor to the city's chronic fiscal instability," Standard & Poor's said.
Bridgeport, with a population of 140,000, gained national attention last year when it became the first large city to avail itself of recently amended municipal bankruptcy laws.
Some analysts speculated at the time that other large municipalities facing the same kinds of fiscal pressure would pursue Chapter 9 if Bridgeport were successful. But last August, a federal judge rejected the bankruptcy filing, which was fiercely opposed by the state, because the city did not meet the bankruptcy court's definition of insolvency.
Bridgeport's former mayor, Mary C. Moran, appealed the ruling. But Ms. Moran lost the next election and her successor, Joseph P. Ganim, dropped the appeal upon taking office in January.
A state review board, which was established in 1988 to monitor city finances, has improved its relationship with the city now that the disputed bankruptcy filing has been discarded.
Peter J. D'Erchia, a senior vice president at Standard & Poor's, said the mended relationship helped prompt the upgrade. "They are working together to have a prudent fiscal position for the city," Mr. D'Erchia said.
Another key to the apparent progress Bridgeport has made in recent months is its handling of city unions. Mr. D'Erchia noted that the city has settled ongoing wage disputes with 0% increases for police through 1993 and small increases for clerical workers in 1993 and 1994. Discussions with firefighters unions are continuing.
Mayor Ganim said Friday a high level of cooperation from Gov. Lowell P. Weicker Jr., the financial review board, and the labor unions had contributed to the city's turn-around. "We're anxiously looking toward an investment-grade rating in the future," he said.
The mayor acknowledged that the city's bankruptcy filing has left a stigma on Bridgeport's credit, "but with the change of administration, hopefully we can quickly leave whatever stigma there is behind." He said the upgrade is "a sign that we're rapidly overcoming our problems."
Bridgeport expects a $2.5 million deficit when the final numbers are calculated for fiscal 1992, which ended June 30. The deficit means the city's cash balance for the year dropped to $21.8 million. The reserve was generated by a $60 million 1989 deficit bond deal.
This year's budget is expected to be balanced, in part because of a 7% increase in property taxes and better contract terms with unions.
"Stable financial operations over the next several years and a longer-term trend of cooperation between the city and the state review board could lead to the restoration of an investment-grade rating, and the outlook is therefore positive, " Standard & Poor's said.
Moody's Investors Service rates Bridgeport B, but the rating is under review.
