Credit downgrades happen all the time: The economy turns sour, budgets are stressed, the powers that be don't want to raise taxes or slash spending.

An adjustment of more than a grade or two, however, is rare. Nonetheless, in October, Standard & Poor's lowered Pittsburgh's bond rating five notches--from a respectable A- to a junk-status BB, making Pittsburgh the only major American city to carry a below-investment- grade rating. Moody's Investors Service also dropped the city's rating significantly, as has Fitch.

The downgrade started with the whisper of the word "bankruptcy" in a city financial document. A few weeks later, Mayor Tom Murphy and several members of the city council asked for "distressed municipality status," a designation available from the state Department of Commerce and Economic Development.

Pittsburgh is clearly in fiscal trouble. To close a $40 million gap in its 2003 budget, the city restructured its debt, tapped its savings and laid off 700 city workers. But it faces an even more daunting gap this year, even after targeting $40 million in cuts. Murphy, a Democrat, is seeking state relief, but the Republican legislature leans toward setting up an oversight board.

Pittsburgh's rating could rise right up again, credit analysts say, if the city balances its budget. But if it declares bankruptcy, BB is not as low as the rating could go.