S&P Global Ratings has lowered the City of Los Angeles’ obligation ratings, which is trying to close a budget deficit of nearly a billion dollars.
Friday, the credit rating agency lowered its long-term rating for the general obligations of the city in Aa- de Aa.
He also lowered the Corp Improvement Municipal note. Los Angeles rental income bonds, which are used to buy city equipment such as fire trucks, at a + AA-.
“The demotion reflects the weakened financial situation of the city and an emerging structural imbalance,” wrote S&P Global Ratings, announcing changes.
S&P said it was concerned about the rapid deterioration of the city’s reserve fund, which should remain 5% or more of the general fund.
To fill a gap in the 2024-25 budget, city officials attracted the reserve fund, which fell to 3.22% of the general fund.
S&P said that bond ratings could still decrease if the city did not quickly accept adjustments to the management of its budget.
The declarations of rating of obligations occurred a few days after the mayor Karen Bass described the striking economic situation of the city in his budget proposed for 2025-26, which includes around 1,650 workers in the city.
Bass described possible layoffs as “an absolute last resort decision”, going to Sacramento on Wednesday to seek state money to save jobs.
The lower bond ratings generally result in higher interest rates, which will make the city more expensive to borrow money.
S&P said it also founded its negative prospects on factors such as “increased risk of litigation, limited flexibility to unilaterally reduce staff costs in the context of current labor contracts and slow down economic growth, despite any economic impact and lasting income of forest fires in the County of Los Angeles in January 2025.”
Bass said the measures she took to balance the budget should assume some of the concerns of the rating agency.
“This announcement was unfortunately expected given the slowdown and turbulence of the economy and in the context of decades of ineffections that have been integrated into the way the city works,” she said in a statement. “The protection of the ratings of our obligations is one of the main reasons why I have pressure for fundamental reforms during the 27 months that I was mayor.”
S&P noted that the budget proposed by BAS 2025-2026 “identifies potential structural reforms, which we consider as an important step towards the correction of the budgetary imbalance”.
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