UPDATE 1-Moody's downgrades Pennsylvania's Montgomery County

July 19 (Reuters) - Moody's Investors Service on Thursday cut the general obligation bond rating of Pennsylvania's Montgomery County to Aa1 from AAA after several years of operating deficits caused by a growing budgetary imbalance.

The downgrade affects $417 million of long-term outstanding debt. Moody's also revised the county's ratings outlook to stable from negative.

At the end of fiscal 2011, the general fund reserves of the suburban Philadelphia county were $24 million. That amounted to a "weak" 6.2 percent of revenue and was "well below average" for others in Moody's top-tier AAA rating category, the agency said.

Moody's was also concerned about the county's continued exposure to derivative agreements of about $200 million altogether, as well as what Moody's said was a recent pattern of failing to make annual pension contributions.

Earlier this week Moody's cut the state's credit rating and put its higher education system on review for a possible downgrade.