Moody's Investors Services yesterday issued a "negative" outlook for $4.3 billion in Philadelphia debt because of the city's weakened finances.

The credit-rating company said that if budget woes continued, Philadelphia's rating might be downgraded. A reduced rating would mean it would cost the city more to borrow money.

Moody's analysts said there was concern about the city's ability to close its 2010 budget gap. The proposed budget requires legislative approval because it includes a five-year sales-tax increase and deferred pension contributions.

City Finance Director Rob Dubow said the city was working hard to make its case to Harrisburg and would have a contingency plan if the budget is rejected by lawmakers.

"No one has closed the door on us," Dubow said, though some legislators have raised concerns.

Dubow said that if the state fails to give Philadelphia a green light, the city would be forced to make "very painful cuts."

He noted that the city is not asking for state money to close a $2.4 billion budget gap. He said the city has "solved $1.7 billion of it" and needs state approval to close the remainder.

The proposed $3.8 billion budget, approved by City Council, would increase the sales tax from 7 percent to 8 percent. Two pension-related changes include deferring for two years $235 million in city payments to its pension fund.

Moody's rates Philadelphia's debt as "Baa1," one of the lowest ratings among the nation's 10 most populous cities.

Contact staff writer Robert Moran at 215-854-5983 or