WEST HAVEN — New York-based Moody’s Investors Service downgraded the city’s long-term general obligation bond rating to Baa1 from A2, affecting about $140.2 million in outstanding general obligation debt, the Wall Street bond rating firm reported Jan. 4.

The rating downgrade reflects the city’s ongoing fiscal challenges, resulting in a growing negative general fund balance position, a weak cash position, and an increasing internal service fund deficit, according to the report.

“The city’s financial position has weakened considerably due to aggressive revenue assumptions and ongoing expenditure pressures,” it said.

“Obviously, I’m not happy with the general fund deficit growing,” Mayor John M. Picard said. “But our overall financial picture is better than it was a year ago, and we’re doing it without borrowing. So we’re making progress, albeit slower progress than I’d like to see.”

Picard attributes the rating downgrade in part to market losses and revenue shortfalls caused by the Great Recession, as well as annual required contributions to the police pension plan.

He pointed out that in 2010, the city received $1 million less in state aid and $500,000 less in permit and license fees generated by the Building Department and city clerk’s office.

But because of measures to limit borrowing and being fiscally prudent, the city’s long- and short-term debt and general fund deficit is $9 million less than the previous year, Picard said.

“My goal is to eliminate the general fund deficit by the end of 2012,” he said.

To achieve that high goal, Picard is taking the necessary steps to arrest the deficit by eliminating 10 city jobs, negotiating and transitioning pension benefits for new police hires to a 401(k) contribution plan, and selling several city-owned properties.

The Moody’s report also highlighted news that West Haven’s sizable $4.2 million equalized net grand list is expected to remain stable.

Looking ahead, it said, the city hopes to benefit from ancillary development from a new Metro-North Railroad commuter station.

The $118 million transportation hub is under construction and is projected for completion in 2012.