MOODY'S DOWNGRADES WESLACO (CITY OF) TX G.O. RATING TO Baa2 FROM Baa1

Posted on: December 23, 2009, 11:58 am

NEW YORK, Dec 23, 2009 -- Moody's Investors Service has downgraded the City of Weslaco, TX to Baa2 from Baa1 affecting $51.8 million in outstanding general obligation debt, ultimately secured by an ad valorem tax pledge on city-wide taxable property within the limits prescribed by law. The downgrade reflects the city's continued structural imbalance in financial operations that has led to a complete depletion of financial reserves to a General Fund balance of negative $213,081 for fiscal 2008 down from a $1.7 million General Fund balance at the close of fiscal 2006. The Baa2 rating additionally reflects that the current recovery plan is dependent on the outcome of contract negotiations for the city's Police and Fire departments. Officials report that these two departments account for 54% of the city's operating budget and that the Police and Fire Department employees are requesting 10% and 12% pay increases respectively. Any pay increase would be retroactive to the close of the last contract in September 2009. Moody's believes that an increase in wages could erode the currently projected surplus budget of $400-500,000, which was projected to restore the General Fund balance to an estimated $200,000...

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