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The downgrade comes as the Missouri city faces litigation and federal scrutiny stemming from last year’s police shooting of an unarmed black teen.
Ferguson, Missouri, the St. Louis suburb that was rocked by civil unrest and drew national attention after a white police officer shot and killed an unarmed black teenager there last year, had its credit rating lowered to junk by Moody’s Investors Service on Thursday.
In announcing the downgrade, the ratings agency cited “severe and rapid deterioration of the city's financial position, possible depletion of fund balances in the near term, and limited options for restoring fiscal stability” and noted that Ferguson could become insolvent by 2017.
Driving the city’s downbound financial trajectory, according to Moody’s, are declines in revenues, unbudgeted expenses, and rising costs tied to litigation and a consent decree with the U.S. Department of Justice. The consent decree is currently being negotiated and is intended to guide sweeping police reforms in the city once it is in place.
A Justice Department investigation after last year’s shooting found that Ferguson’s approach to law enforcement was focused heavily on generating budget revenue from fines and fees and that this had contributed to a pattern of unconstitutional policing practices.
Consent decrees similar to the one Ferguson is negotiating with the Justice Department have been put in place in jurisdictions around the U.S. The agreements allow local governments to avoid litigation with the federal government, while providing a framework to fix problematic policing practices. But achieving compliance can take years of time and cost millions of dollars.
The shooting of Michael Brown by Ferguson police officer Darren Wilson last August sparked an ongoing national debate about issues related to law enforcement and race.
Thursday’s downgrade moved the city’s general obligation rating from Aa3 to Ba1, which is below investment grade. Local governments in Missouri can seek Chapter 9 bankruptcy protection, but Moody’s said that Ferguson has not indicated that it has plans to file.
Bill Lucia is a Reporter for Government Executive's Route Fifty.
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