Moody’s Affirms L.A. County Trans

Moody’s Investors Service on Wednesday reaffirmed its MIG-1 rating on Los Angeles County’s fiscal 2009-2010 tax and revenue anticipation notes, despite threatened state budget cuts that led Standard & Poor’s to downgrade the county earlier in the week.

Standard & Poor’s cut the biggest U.S. county’s short-term credit rating to SP-1 from SP-1-plus after Gov. Arnold Schwarzenegger proposed closing a $24 billion budget deficit in part by borrowing local government tax revenues and by reducing spending for social services delivered by counties. Los Angeles County projected that the state budget crisis could cost it $417 million under the governor’s proposal.

The biggest hit would come from the elimination of CalWorks, the state program that provides temporary financial assistance and employment services to families with children. Its elimination would increase demand for general assistance, which is a county program that provides cash payments of just over $200 a month to very poor adults who don’t qualify for other social programs.

“We do not expect [the proposed CalWorks cuts] to impair note-holder security of the county’s 2009-10 tax and revenue anticipation notes,” Moody’s said in a release. “The county’s cash-flow projections, which play a crucial role in our analysis, are inherently conservative.”

Moody’s cited an unexpected $173 million improvement in the county’s cash position in May as evidence that the local government’s conservative budgeting provides a buffer against state budget uncertainty.

Glenn Byers, the county’s director of public finance, objected to Standard & Poor’s downgrade because the proposed cuts are unlikely to pass the Democrat-controlled Legislature and because the county could cut its budget to maintain a balanced budget if the state cut funding.

“The county’s demonstrated willingness and ability to enact budget cuts when necessary to preserve sound financial operations with adequate liquidity” was important to Moody’s decision to maintain the short-term rating, the agency said.

Moody’s action leaves Standard & Poor’s alone among the major rating agencies in cutting Los Angeles County’s short-term ratings from the highest level. Fitch Ratings rates the debt F1-plus.

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