The report received by New London from Fitch Ratings this week shows the steps taken by Mayor Daryl Justin Finizio and the City Council to address the city's fiscal problems and rebuild the fund balance have stabilized the financial outlook. The agency held the city's credit ratings steady.

But the report is full of cautionary statements, indicating that unless elected leaders remain committed to rebuilding the fund balance as a cushion against a sudden loss in revenues or a spike in expenses, New London could again be facing a credit downgrade and an increase in the cost of borrowing.

On Friday, Standard & Poor announced it was also keeping the city's credit rating steady.

Making sure interest on borrowing remains as low as possible has arguably never been more important for the city. Over the next few years, the city will be undertaking the plan to convert its schools system into an all-magnet-schools district. The renovation and new construction necessary is expected to cost upwards of $200 million, with the state responsible for 80 percent and New London the difference.

However, if the magnet school program is successful in essentially converting public schools into a high-quality regional system, it will prove transformational. In addition to improving educational opportunities for New London kids, a quality school system will attract young families to the city, helping revive its struggling real estate market.

The Fitch ratings report points to Zillow Group data indicating 36 percent of homes in New London are "underwater" - they have negative equity - and home prices are forecast for a 3 percent decline in the coming year. It's apparent that the city's two major challenges, boosting property values and improving schools, are intertwined.

When Mayor Finizio took office in 2011 - the first mayor elected under the switch from a city manager to mayoral form of government - he confronted a city in fiscal crisis due to past deficit spending that carried into his administration.

The mayor and council have brought the budget back into balance through a combination of spending cuts and tax increases, including a 9.6 percent increase in the current fiscal year over the last.

The rating agency looks favorably on the mayor's plan to rebuild the fund balance, almost entirely exhausted by the prior deficit spending. The plan included bonding $1.1 million and placing it in the fund, making up for expenditures that had sapped city resources when past bonded construction projects went over budget.

In addition, the current budget sets aside $500,000 for the reserve fund. The fund-balance replacement plan, approved by the council and signed by the mayor, requires budgeting at least $250,000 annually to rebuild the fund. Adopting a mayoral recommendation, council policy also requires that proceeds from the sale of city property must go into the fund.

City voters deserve credit for approving last November both the plan to rebuild the fund balance and the budget with its tough tax increase medicine.

Even with these efforts, Finance Director Jeff Smith estimates that the fund balance will reach only $2.5 million when the fiscal year ends June 30, still well below the roughly $6.5 million goal established by ordinance.

Continuing to rebuild the reserve fund and adequately meeting pension contribution obligations is critical, said Fitch in its report.

"Failure to both comply with this plan and fully fund the actuarially required pension contributions could result in negative rating pressure," it stated.

New London will continue to have its struggles. While city unemployment dropped in 2014 to 7.7 percent from 9.3 percent in 2013, it remained substantially higher than the state and federal unemployment rate. Median household income is 65 percent of the state level, noted Fitch, and the poverty rate 25 percent, relative to a national rate of 15.4 percent.

It is a city vulnerable to cuts in state aid and burdened by a lack of commercial taxable property.

Nevertheless, with plans for a National Coast Guard Museum on the waterfront that will lead to a downtown district renewal, an exciting plan to reform schools, and improved fiscal stability, there is reason for optimism that a corner may soon be turned.