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San Jose's Credit Rating Drops

SAN JOSE (KCBS) – It will now be more expensive for the city of San Jose to borrow money now that the city has seen its AAA credit rating downgraded twice by the major ratings agencies.

City Manager Debra Figone made the announcement at Tuesday's San Jose City Council meeting.

"Moody's ratings services announced a downgrade of San Jose's general obligation bond rating by one notch," said Figone.

That means that the rating was lowered from AAA to AA1. Fitch made a similar downgrade last year. The change will cost the city an additional $350,000 a year.

Moody's said the downgrade was a result of the city's shrinking reserves and increasing retirement costs. Figone noted that the city is running a small budget surplus for the next fiscal year.

"Still, we have a long way to go to reach the level of financial stability that is needed," said Figone.

To get its AAA rating back, Councilmember Pierluigi Oliverio advised against spending any of the city's reserve funds.

KCBS' Matt Bigler Reports:

"Reserves are there for a reason," said Oliverio. "Reserves are there for real true emergencies like natural disasters, because the city doesn't have insurance. Secondly, it also maintains a good credit rating."

All of this comes as a controversial pension reform measure heads to the June ballot. Moody's noted that quote "few cities have taken such a direct approach in addressing the challenge of retirement costs."

(Copyright 2012 by CBS San Francisco. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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