Bond rating agencies maintain wary eye on LA city finances

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Los Angeles City Administrative Officer Miguel Santana Friday sent a letter to the mayor and city council outlining recent credit reports from bong ratings agencies.

“Although Fitch acknowledged that the city had reduced its structural deficit, Fitch stated that the city still had an imbalance,” Santana wrote.  Fitch Ratings said “further pension and benefit reform” is key to achieving out-year budget balancing, according to Santana.

Fitch said the city needs those reforms whether or not voters approve a half-cent sales tax hike on the March 5th ballot. Santana has said that tax would raise an additional $200 million for the city annually.

Fitch left Los Angeles at an AA- bond rating, with a stable outlook.

Standard and Poor’s gave a negative outlook to the city’s Solid Waste Revenue bonds, citing the program’s “projected increase in operating costs and mostly debt-financed large capital improvement program.” It gave those bonds a Double-A minus rating. 

The city administrative officer said another ratings agency, Moody’s, has raised concerns about deferred labor costs and the relative weakness of the economic recovery.

“Despite significant General Fund budget cuts in recent years, the city continues to have a substantial structural deficit,” Moody’s stated in its credit report.

Santana acknowledged the challenge.

“Closing the gap will likely be difficult, especially if the economy continues to slow expansion, since the city has already made substantial cuts from its projected baseline budget expenditures over the last several years,” he wrote.

Moody’s is slightly more optimistic about LA’s outlook than Fitch, with an AA bond rating for the city.

Read the report here: