L.A. County’s Poor Bond Rating Is Poisoning the Well for the City

It’s not a great time to be selling bonds if Los Angeles is part of your official municipal name.

That’s what the city of L.A. found out last week as it tried to drum up investor support for $230 million in general-obligation bonds it will sell Tuesday.

The city’s bond sale, an annual event, this year happens to follow by a few days the latest downgrading of Los Angeles County’s bonds by the two major credit-rating agencies, Moody’s Investors Service and Standard & Poor’s Corp.

Financially, the city and the county are worlds apart. While Moody’s last week cut the county’s general-obligation bond rating from A1 to A--and warned that the rating might drop further if the county’s budget woes worsen--the agency affirmed its Aa1 rating on the city’s bonds. That is three notches above the county’s rating.

Despite a weak economy, “the city’s broad revenue base and limited scope of services, compared to other major [U.S.] cities, provide significant flexibility,” Moody’s said.

Nonetheless, the city’s chief of debt administration, Gerry Miller, said the threat of taint on the city’s name because of the county may cause the city to buy private insurance for the bonds to assure their sale at a reasonable interest rate.

The tax-free bonds, to be sold in maturities ranging from two to 20 years, will raise money for seismic retrofitting of city buildings and to improve other facilities.