Paterson which has been borrowing money by selling securities to pay for pensions and other things came under the scrutiny of Moody’s, a large credit rating agency, which has downgraded the city’s debt rating from Baa1 to Baa2. The ratings are often used by investors to assess the amount of risk involved in lending. “The underlying Baa2 rating applies to $41.9 million of currently outstanding general obligation debt,” according to the rating agency.
The reasons for the downgrade included: “Depleted financial position and narrow liquidity, increasing reliance on deferred charges”, “Declining socioeconomic wealth, high poverty rates and slow economic growth “, and “Declining state aid”. Although the two ratings are subtly different it is sure to scare potential buyers from purchasing the city’s debt.
There are ways to improve the rating, the agency cited three things the city could do in order to improve its rating: promote economic growth, expand the tax base, and get rid of the structural deficit.