LOS ANGELES — Moody’s Investors Service Tuesday downgraded Los Angeles’ general obligation bonds one notch to Aa3 from Aa2, affecting $3.3 billion of outstanding debt.
“The downgrade primarily reflects the city’s increasingly limited general fund financial flexibility and likely continued cost pressures,” Moody’s analyst Eric Hoffmann said in the report.
The downgrade brings Moody’s rating in line with the AA-minus from both Fitch Ratings and Standard & Poor’s.
Hoffman said five consecutive years of deficits have significantly reduced the city’s general fund balances and the very slow economic recovery will likely mean Los Angeles’ revenue growth will lag rising costs.
The city has made significant progress bringing costs in line with its reduced revenue, Hoffman noted. However, he said rising pension and retiree benefits costs will add pressure on the general fund for the foreseeable future.
Moody’s assigned the new lower rating to the city’s $378 million of GOs slated for sale next week.
It also downgraded the rating on its judgment obligation bonds to A1 from Aa3, obligations secured by property leases to A2 from A1, and capital equipment lease-secured obligations to A3 from A2.
Hoffman also noted that Los Angeles, like all California cities, is unable to raise taxes without voter approval and that inflexibility contributed to the downgrade.
Moody’s, in connection with the lowered rating, revised the city’s long-term outlook to stable from negative.
