The City of Manassas Park’s credit rating dipped two levels to A3 from A1, partially because of the city’s high debt burden and significantly limited financial flexibility, according to a release issued Tuesday by Moody’s Investor Service.

The downgrade is specficially on the city's $116 million outstanding General Obligation debt.

 Moody’s analysts gave the city a negative outlook because they expect it to continue to have difficulty in restoring the city's reserves to adequate levels and a limited chance to improve its financial situation quickly.

 The city’s narrow reserves limit its financial flexibility and its ability to withstand more budgetary pressure. Further cuts by the city would be difficult because the city’s services are already signicantly reduced, according to Moody’s.

 “The downgrade to A3 reflects the city's deteriorating financial position since 2007 marked by a lack of structural balance due to declining property and sales tax revenues,” Moody’s analysts wrote in the release. “The A3 rating also incorporates the city's moderately-sized tax base experiencing contraction, coupled with high debt and average wealth levels.”

 Moody’s analysts put city officials on notice about the possible downgrade in October when it placed Manassas Park on Watchlist.

 Moody’s agreed to postpone its final decision for 60 days from the time it put the city on Watchlist. Analysts also asked Manassas Park city officials to come up with a financial plan within that time frame.

 City council approved the financial plan in early December—a plan that calls for tighter limits on spending and includes limiting the combined growth of city operating expenditures and school operating payments to a maximum of 1.5 percent a year, unless the city's tax base growth is more than 3.5 percent.

The 60 days expired in December, but Moody’s has an internal policy to not announce any rating changes between Christmas and New Years, Manassas Park City Manager Jim Zumwalt said earlier this month.

 Moody’s analysts said the ability to maintain adequate reserves will be key to maintaining overall credit quality.

 Tuesday’s downgrade wasn’t as severe as the five-notch dropped issued by  Standard & Poor’s in June.  The drop was partially because the city didn’t have a financial plan, Manassas Park Finance director Gary Field said in an earlier report. 

The other reasons given for the Standard and Poor's downgrade are:

·  The large decline in the city's tax base, which has led to large property tax revenue reductions;

·  Declines in other economically sensitive revenues; and

·  The city's high overall debt burden with elevated debt service levels, which Standard & Poor's considers somewhat mitigated by limited future capital need