Fitch Ratings affirmed its AA-minus general obligation bond rating for San Francisco this week, deciding to keep its rating one notch below Standard & Poor’s and Moody’s Investors Service.

Moody’s upgraded the city-county government’s credit to Aa2 earlier this week, and Standard & Poor’s rates it AA.  The agencies updated their ratings ahead of a general obligation park bond issue that’s scheduled to be sold competitively on Aug. 14.

“The ratings reflect San Francisco’s solid financial position aided by a well-disciplined rainy-day fund, and a diverse and strong local economy currently performing well despite national weakness, owing somewhat to a strong tourism draw,” Fitch analyst Amy Doppelt said in a report.

But she expressed somewhat more concern about the city’s short-term budget picture. It had to plug a forecast $338 million general fund deficit this year with a combination of fee increases, spending reductions and inter-fund transfers.

“The budget deficit going into fiscal 2009 was the largest in several years,” Doppelt wrote. “The budget is balanced with about one half of the gap-closing measures being non-recurring in nature, such as use of reserves, capital deferrals, and a financing for projects previously cash-funded.”

Moody’s upgraded the city on its continued economic strength and improving reserves. Fitch cited both as strengths but expressed less confidence that they can be maintained amid a weakening economy.

San Francisco’s unreserved fund balance was 5.3% of expenditures at the end of fiscal 2007. Combined with a rainy-day fund created by voters in 2003, the city’s total financial cushion equaled 10.4% of the general fund, Fitch said.

“More recent financial data shows strain, with the city’s nine-month budget status report expecting fiscal 2008 revenues slightly below budget and a sizeable operating loss for the year,” Doppelt said. She cited the city’s need to spend down some of its rainy-day fund, and falling property transfer tax collections and state aid.


Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.