Revenue concerns prompt another L.A. bond-rating downgrade
The last of the nation’s top financial credit agencies took action Tuesday to lower Los Angeles’ bond rating, which will likely cost the city millions of dollars more when it borrows in the future.
City Administrative Officer Miguel Santana said the Standard & Poor’s downgrade stemmed from concerns about the significant drop in tax revenues that city officials have seen and their plan to draw on reserves to end the year in the black.
Standard & Poor’s acknowledged that officials had taken some steps to close the budget gap, city analysts said -- including last week’s authorization to eliminate 4,000 city workers to save as much as $300 million next fiscal year. But analysts continue to be concerned that officials are spending more than they receive in revenue.
The agency downgraded Los Angeles from “AA” to “AA-minus” with a stable outlook.
Though that is still considered a good bond rating when compared with other governments, Santana said the change could cost the city millions of dollars annually in higher interest rates.
“They want to see action,” Santana told the City Council. “They want to make sure that the plan we’ve laid out actually reaches fruition and is completed. . . . The next question they will be asking when they review us again is, ‘Did you reduce those 4,000 positions?’ ”
Last week, Moody’s Investors Service reduced its opinion of L.A.’s finances from “stable” to “negative” because city officials had delayed addressing the budget shortfall -- currently $212 million -- and have proposed tapping reserves to balance the books. In November, L.A.'s credit was downgraded by Fitch Ratings, which determined that Mayor Antonio Villaraigosa and the City Council had failed to take adequate action to address the fiscal crisis.
Council President Eric Garcetti said the downgrade by Standard & Poor’s had been expected, but he emphasized that the council and mayor also had taken swift action to address the concerns, including approving layoffs, adopting a three-year budget plan and taking action to replenish the city’s reserve fund and balance the budget.
Mayor Antonio Villaraigosa, in Washington for a United States Conference of Mayors meeting, called the downgrade “disappointing” but said the city has taken the necessary steps to regain its fiscal footing.
“This downgrade has not, and will not, change our plans to cut costs, strengthen the reserve fund and find ways to provide services to Los Angeles’ residents in a smarter and more efficient way,” Villaraigosa said in a statement.
“We will continue to act with the urgency the situation demands,” he said.
The effect of the credit downgrade could be felt within the next few months, when L.A. expects to issue a $70-million bond to pay for various legal judgments against the city.