Standard & Poor's Corp. and Fitch Investors Service yesterday lowered their ratings on Pittsburgh to A-minus from A, citing deteriorating financial conditions over the past several years.
All of the bonds affected by the downgrades are insured. The Standard & Poor's move affects only its underlying rating on Pittsburgh; the $529 million of city bonds that Standard & Poor's rates remain AAA in recognition of the credit enhancement.
Fitch's move affects $505 million of outstanding general obligation bonds, which are insured by Municipal Bond Investors Assurance Corp. Fitch does not rate MBIA, so the triple-A assessment that normally applies to MBIA-insured deals at other rating agencies does not apply to Fitch's Pittsburgh rating.
Standard & Poor's said ongoing budget deficits and an expected $22 million imbalance between recurring revenues and expenditures for fiscal 1994 and 1995 contributed to its move. The city's fiscal year starts July 1.
The new administration of Mayor Tom Murphy plans to cut spending in an effort to reduce the projected deficits.
The plans involve primarily personnel and salary reductions, health care and worker's compensation expenses reductions, and increased revenue collection measures. But Standard & Poor's said the problems are too deep to justify an A rating.
"Both the magnitude of the accumulated general fund balance deficit and the relatively long period of time needed by the city to extinguish the debt warrant the rating change," the rating agency said.
Standard & Poor's also removed Pittsburgh from negative CreditWatch, but left its long-term outlook at negative. "A further deterioration of the city's financial position, particularly if it necessitates external borrowing to finance operations- ... could lead to lower ratings," Standard & Poor's said.
In a statement announcing its downgrade, Fitch said the city's economy has diversified in recent years and indicators are "favorable," but "financial performance has deteriorate over the past three years and fixed costs for debt service and pensions are already high."
Fitch said Pittsburgh's yearend 1993 budget had a GAAP deficit of $20.1 million, "in part reflecting overestimation of revenues and depletion of budget-basis balances for operation."
Pittsburgh officials planned to come to market earlier this year with a $45 million insured issue, but were forced to postpone the issue when auditors made a preliminary finding that the city deficit was much larger than originally thought. The issue is now slated for this summer.
Other factors contributing to Fitch's more pessimistic appraisal of Pittsburgh's creditworthiness included the recent use of one-time revenues for operating expenses and the lack of a plan to eliminate the accumulated deficit.
On the positive side, Fitch noted that the city's newly formed Regional Asset District was set up to assume operating costs of regional cultural facilities funded by a 1% sales tax in Allegheny County.
"Still, the structural imbalance and the accrued deficit must be addressed, leading to an uncertain credit trend," Fitch said.
Michael Johnston, manager of Northeast regional ratings for Moody's Investors Service, said the rating agency is reviewing its Pittsburgh rating, which stands at A, and could release a statement as early as today.