LOS ANGELES — Moody's Investors Service has upgraded San Diego's issuer rating to Aa2 from Aa3 and the city's lease revenue bonds to A1 from A2.
The outlook on all new ratings is stable.
Moody's cited the city's improved financial position, marked by growing cash and reserves over the past five fiscal years for the rating upgrade in the Nov. 12 report.
Other positive attributes noted by Moody's analysts include a growing local economy with sound long-term prospects, stronger financial policies and the continued commitment to tackling pension and other post-employment benefit liabilities. Declining unemployment and improved socio-economic income and wealth measures are also helping to improve the city's financial picture, analysts said.
Economic strengths highlighted in the report included a 6.2% unemployment level in August 2014, comparing favorably to the 7.4% state rate and 6.3% for the nation. The city's assessed value also grew to $166 billion in 2014 exceeding the pre-recession high of $163.7 billion in 2009.
The city "maintained a stable, albeit limited reserve position through the economic downturn with aggressive expenditure controls," analysts said.
The city is also on track to achieve reserve targets and other goals outlined through strengthened financial policies and has a low debt burden composed solely of fixed-rate debt, according to Moody's.
Two years ago Moody's began drawing a distinction between California GO and lease revenue debt resulting in a several notch difference between the two for most cities. That is the case for San Diego.
The issuer rating is equivalent to what the city's general obligation bond rating would be if it had any such debt.
The difference between the two ratings is based on what Moody's said it considers the relative weakness of the pledge on the leases compared to the city's theoretical general obligation promise. The city's pledge to repay its lease debt is a contractual obligation, on parity with the city's other unsecured obligations.
"This promise is notably in contrast to the stronger, voter approved general obligation pledge that provides a baseline for our estimate of the credit quality of lease pledges," Moody's analysts said in the report. "Under California law, an issuer's GO pledge is an unlimited ad valorem property tax pledge. The city must raise property taxes by whatever amount necessary to repay the obligation, irrespective of the city's general financial position."
