March 15 Moody's Investors Service said late on Thursday it cut Paterson, New Jersey's long-term general obligation bond rating to Baa2 from Baa1, affecting about $41.9 million of debt with a negative outlook.
The rating agency also cut the city's special emergency notes to MIG3 from MIG2, affecting about $6.1 million of debt.
The Baa2 rating cut "reflects the city's depleted financial position with negative reserves net of deferred charges, narrow liquidity, declining state aid and an increased dependence on deferred charges," the rating agency said in a statement.
Moody's said the negative outlook reflects its belief that the city may struggle to structurally balance its budget.
Paterson is also challenged to strengthen its cash and reserve levels as it faces reduced state aid, a 2 percent tax cap, pressure from employee salaries and benefits and a weak economic recovery, Moody's said.