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MOODY'S REVISES SAN FRANCISCO, CALIF. GENERAL OBLIGATION RATING FROM 'Aa' TO 'A1'

 NEW YORK, Feb. 23 /PRNewswire/ -- Effective today, Moody's Investors Service has revised San Francisco's general obligation bond rating from Aa' to A1'. In revising the rating, Moody's noted the city's depletion of general fund reserves, deep and continuing revenue cuts, the use of non-recurring revenues to correct imbalances, continuing expenditure pressures and the prospect of continued financial strain.
 According to Moody's, the city's credit quality has been derived from the continued strength and diversity of the local economy, the growing and wealthy tax base, and the moderate debt levels. San Francisco's established and diversified economy, with a strong service industry orientation, particularly in the finance and tourism industries, has helped the city to weather the current economic environment better than the southern portion of the state. Notably, San Francisco's economy has been less vulnerable to weaknesses in the defense aerospace, manufacturing and construction industries.
 While the local economy has fared better than California as a whole, Moody's notes that local revenues have still been negatively affected by the recession; state budget actions have forced the city to share the burden of state-wide pressures. These short-term recessionary conditions have been compounded by long term pressures which have resulted in seriously diminished reserve levels and eroded financial flexibility. Over the last two fiscal years, the city's audited general fund balance has declined from $90.6 million to $3.8 million, due in large measure to lower than budgeted revenues. The combination of severe and continuing cutbacks in revenues -- especially the state's reallocation of $53 million in property taxes -- and the need to fund large, previously deferred salary increases, created sizable budget imbalances earlier this year. This imbalance was largely addressed with non-recurring revenues, including a $25 million borrowing against future airport concessions, to avoid service cuts or revenue increases. As a result, the city will need to address even larger shortfalls in the coming year.
 San Francisco faces continuing revenue losses resulting from state budget action, and increasing financial pressures due to labor wage increases and escalating service costs. Given the city's historical inability and/or general reluctance to cut services or increase revenues, and the minimal level of reserves, the city is faced with very limited options for addressing this continued budget strain.
 It should also be noted that San Francisco is unique among California governments, providing the services and assuming the responsibilities normally assumed by a combination of cities, counties and special districts, (for example, public transportation) in every other part of the state.
 The rating action was taken in conjunction with the assignment of a Con.(A) rating to $12,075,000 of Certificates of Participation to be sold by San Francisco through competitive bid Feb. 24. In addition, Moody's confirmed the A' ratings on the city's debt, Moody's does not make a rating distinction between the city's equipment and other leases. Although the city's weakened financial position directly affects the credit strength of these obligations, the change is not sufficient to merit a rating revision of the lease ratings. However, all of the city's ratings would remain vulnerable to any further deterioration of financial operations.
 San Francisco currently has approximately $528.5 million of general obligation bonds outstanding and expects to issue $105.5 million of additional voter approved bonds on April 21, 1993. The city also expects to issue $16 million of equipment lease revenue bonds on March 16.
 -0- 2/23/93
 /CONTACT: Nikolai J. Sklaroff, assistant vice president, 415-274-1741 or David A. Brodsly, vice president and manager, 415-274-1739, both of Moody's/


CO: City of San Francisco ST: California IN: SU: RTG

TS-WB -- NY076 -- 9548 02/23/93 15:54 EST
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Date:Feb 23, 1993
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