LOS ANGELES ¯ Los Angeles continued a streak that stretches back to 1998 in achieving the highest short-term ratings for the $1.36 billion tax and revenue anticipation note it plans to price next week.
City finance officials hope that when Moody's Investors Service and Standard & Poor's update long-term bond ratings, the steps the city has taken to deal with long-term fiscal issues will be reflected, said Natalie Brill, the city's debt manager.
Brill pointed out that Fitch Ratings affirmed its AA-minus general obligation bond rating, with a stable outlook, June 11. S&P rates Los Angeles GOs AA-minus, and Moody's rates them Aa2.
Fitch cited revenue and property tax growth expected to continue into fiscal 2015 and beyond. Cautions included a "stubbornly high" unemployment rate at 9.7% in March 2014, but improved from the July 2010 peak of 14.7%, according to Fitch.
The planned note sale received F1-plus, MIG1, and SP-1-plus ratings from Fitch, Moody's and S&P, respectively.
"The bond markets are recognizing that Los Angeles is firmly committed to sound fiscal policies that result in the lowest borrowing costs," said City Administrative Officer Miguel Santana.
The proceeds will be used to pre-pay the city's annual pension contributions and, as is routine, to alleviate short-term cash flow needs that occur early in the fiscal year, before many taxes and revenues have been received, according to city officials.
The city anticipates saving more than $35 million through its pension contribution pre-payments due to a discount rate it receives from the pension systems for making its payment in July rather than on a bi-weekly basis. The notes will mature in June 2015. Ramirez & Co. is senior manager.
Mayor Eric Garcetti said city fiscal policies have resulted in reserves totaling $408.6 million, which represents 8.4% of general fund revenues. Reserves exceed the 5% reserve fund policy. The mayor also cited efforts to maintain the city workforce at Mayor Tom Bradley-era levels despite a growing budget, so that the city can invest in capital improvements. Bradley served from 1973 to 1993.
Pension reforms are expected to result in city budget pension contributions hitting a peak in 2016-17 and declining thereafter. Those efforts and other measures will result in structural budget balance in 2018-19, according to the mayor.
"We've earned our good credit by making tough fiscal decisions and being disciplined in how we budget," Garcetti said. "We must continue to pursue a course of fiscal discipline so that we bring structural balance to our budget, which translates into savings for taxpayers."
Santana is meeting with major investors in California and on the East Coast this week to update them on the city's financial and economic status and discuss the upcoming TRAN sale, tentatively set for June 26.