The strength of the Los Angeles economy and solid debt management practices prompted Fitch Ratings to boost the city's credit by one level to AA.
In a report Thursday, Fitch cited several years in which revenue growth has outpaced expenditure growth, consistent efforts to achieve financial flexibility and that the city has typically achieved structural budgetary balance.
"This upgrade demonstrates the continued fiscal stewardship of the City by Mayor Eric Garcetti and the City Council,” said Richard H. Llewellyn, Jr., City Administrative Officer. “We are pleased that Fitch Ratings recognized our good management practices."
In the years following the 2008 recession, the city worked to whittle down a half billion dollar deficit and a structural budget imbalance.
Compare that to today.
Llewellyn reported in his mid-year financial report on Feb. 29 that revenues were coming in $43 million above the $2.91 billion projected in the 2018-19 adopted budget.
“The city demonstrates the highest level of gap-closing capacity relative to expected revenue volatility,” Fitch analysts wrote. “Reserves in combination with the city’s midrange inherent budget flexibility leave it well-positioned to address future downturns.”
The city also benefits from a moderate debt burden, Fitch wrote.
The city, like other major cities, however, faces ongoing challenges “from a strong labor environment, increasing pension system and other post-employment benefit (OPEB) employer contributions, and public demand for service enhancements,” analysts wrote.
The rating change affected $423 million in outstanding general obligation bonds, $15 million in outstanding judgment obligation bonds, $1.1 billion in Municipal Improvement Corporation of Los Angeles lease revenue bonds and $72 million in solid waste resources revenue bonds,
The city’s GOs and solid waste bonds ratings were boosted to AA from AA-minus. The city’s judgement obligation bonds and MICLA ratings rose to AA-minus from A-plus.
The AA-minus rating for the city's judgment obligation bonds and the MICLA lease revenue bonds indicates the slightly higher repayment optionality, Fitch wrote.
