Costa Mesa’s credit rating drops one grade

COSTA MESA — The city’s credit rating dropped one grade because of its “weakened financial profile,” according to a news release issued by City Hall on Friday.

In its reasoning, Moody’s Investors Service cited an above-average exposure to volatile sales tax revenue and low reserve funds. The credit rating firm bumped the city from an Aa1 rating to an Aa2 rating.

An Aa rating is judged to be “of a higher quality … and subject to very low credit risk,” according to Moody’s website.

“The city’s financial profile has eroded, which represents a fundamental change to the city’s credit position,” the firm said in a statement released to the city by Moody analysts.

The city’s “manageable debt burden” and “economic profile with socioeconomic factors” were also part of the decision to downgrade the credit rating.

Among the economic strengths cited in the evaluation were the city’s large metro-area tax base and operations expected.

“Despite notable expenditure reductions in fiscal year 2011, Moody’s does not expect the city to rebuild its reserves to historic levels for several years,” the firm said in its evaluation.

— Lauren Williams