[Source: Wall Street Journal] — Moody’s Ratings Service lowered its ratings outlook on the city of Phoenix, Arizona, to negative, citing ongoing revenue declines and expected tax-base losses in the city, which will weaken its credit profile. Arizona’s largest city, and the fifth most populous in the U.S., is in the midst of a severe recession that began with the housing crisis and now includes most other sectors of the economy.
Unemployment has been less of a burden in the city, reaching 8.7% in July, compared with 9.5% for the state and 9.7% for the nation. But a weak job market combined with the potential for more foreclosures means many consumers in the area will severely limit their discretionary purchases well into 2010, Moody’s said.
The ratings agency said that, despite the city’s efforts to maintain fiscal stability during the recession, the outlook cut reflects Moody’s expectation that finances will remain under pressure for the foreseeable future, given those broader economic concerns and uncertainty about the region’s next economic expansion. Moody’s has Phoenix at Aa1, which is one notch under Aaa. The outlook change affects about $2.4 billion of debt.
Earlier this month, Moody’s lowered its ratings outlook on Arizona’s Aa3 issuer rating, which is three notches under Aaa, to negative. The ratings agency cited similar concerns about revenue underperformance. Despite those concerns, once the housing market levels off, Moody’s said Tuesday, Phoenix will resume its above-average long-term growth due to its high-skill office jobs and high-tech manufacturing sector. The city continues to develop a number of revitalization efforts, including a convention-center expansion, light-rail construction, and development of a downtown campus for Arizona State University. Moody’s said those efforts and ongoing population increases should help the city recover at a faster rate. [Note: Read the full article at Moody’s lowers ratings outlook on City of Phoenix to negative.]