A New York City credit rating agency left Pittsburgh at junk bond status yesterday, but said the rating could get better in coming months due to state oversight initiatives.

Standard & Poor's left the city's credit rating at BB, which is below investment grade and the worst rating for any major American city. But it removed Pittsburgh from its "watch" list, meaning it was poised for another downgrade, changing the outlook to positive, meaning the rating could be raised in the next one to three years, or possibly sooner, analyst Jeffrey Panger said.

Panger said the change to the positive outlook was due to dual efforts by recovery coordinators under state Act 47 and a new state-appointed oversight board to write new plans for saving the city budget, possibly including new tax revenue sources.

S&P and other ratings agencies dropped the city to junk bond status last year after auditors questioned whether the city could pay its bills in 2004 and Mayor Tom Murphy applied to the state for Act 47 distressed status.

The city got another measure of good news yesterday in a report on its pension fund, which grew by 24 percent in 2003, largely due to a good fourth quarter in the stock market.

The pension fund ended the year with $342.7 million and has grown to $356 million by this month.

That leaves the fund about 50 percent funded, missing half the money necessary to pay out pensions to all its current workers as well as retirees.

The fund's value is growing, just as the city's pension payments from its yearly operating budget also are due to grow.

The city's roughly 4,000 retirees are due about $57 million per year, according to Finance Director Ellen McLean. The pension fund pays out $34 million and the rest is covered by an $18 million state payment and $5 million from the city budget.

But the state's funding is tied to the number of current workers on the city payroll, not retirees, so when the city lays off workers as it did last year, it means its state funding will go down. Police and firefighters are given twice as much weight as municipal employees, so with the city taking 200 police off the payroll the last two years, it means its state payments will be especially impacted.

The Murphy administration is hoping the Legislature -- possibly at the recommendation of state overseers -- will change those rules, to help cities that are trying to pare down their workforces.

"It's a disincentive to get more efficient, if it's depleting your state aid," McLean said.