LOS ANGELES — Moody's Investors Service gave Los Angeles kudos for strong financial management in a report released last week.

The favorable report comes on the heels of an affirmation on Nov. 19 by Moody's of the city's Aa2 general obligation bond rating combined with upgrades of the city's outstanding real property and lease-backed obligation ratings to A1 and A2 from A2 and A3, respectively.

The city turned its budget outlook from growing deficits to a projected small surplus in 2019.

The city is well-positioned to strengthen its strong credit profile given a resilient and growing tax base, a highly diverse economy, and gradually growing reserves, Moody's analysts Kristina Alagar Cordero, Eric Hoffmann and Naomi Richman said in the report.

"It is good that Moody's recognized that the city worked very hard to improve its fiscal standing," said Miguel Santana, Los Angeles city administrative officer.

Moody's credits the city's "strong financial management" with curtailing expense growth, including significant pension costs, prudently positioning the city to grow reserves, and for reversing the four-year budget outlook from one of growing deficits to a declining trend leading to a small surplus in 2019. Four consecutive years of surpluses have grown reserves after deficits in the previous five years.

"The close of the structural deficit is of particular note given the city's limited financial flexibility due to higher-than-average fixed costs associated with pensions and OPEB and the limited revenue-raising flexibility of California cities," according to the Moody's analysts.

The Los Angeles tax base has increased by more than 6% to $464 billion due to a highly diverse and growing economy, analysts said.

Cuts to city staffing made in 2010 and 2011 helped achieve budgetary balance and achieve a general fund balance of 15% of revenues in fiscal 2013, according to the report. The overall workforce has been reduced 14%, or more than 5,000 positions, to 31,893, a level that hasn't been seen since the 1990s, according to the report.

The reductions have been achieved through attrition, a retirement incentive program, employee transfers, layoffs and managed hiring.

"It has been a challenging journey we have been on; clearly we have made some significant progress," Santana said.

While Santana said he is proud of everything the city has achieved, he added that the city is clearly not out of the woods and needs to "maintain discipline, not rest on its laurels and slip back to the way things were before."

He attributed the strides achieved to decisions policymakers have made and the sacrifices made by its labor unions.

Strides made by the city include significant progress toward reducing fixed cost burdens for pension and other post-employment benefits such as retiree healthcare, according to Moody's.

The city adopted a new retirement tier for civilian employees hired after July 1, 2013 that lowered maximum pension benefits to 75% from 100% of final compensation. It also limits retiree healthcare to the employee, no longer including dependents. Projected savings over a 30-year period are expected to be $4 billion, with the majority of savings in out years.

The Los Angeles Employee Relations Board has ruled the city must reverse these cuts because it failed to meet and confer with labor groups, but the city is appealing the board's ruling and the pension tier is still in effect.

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.