SAN FRANCISCO – Moody’s Investors Service raised San Francisco’s general obligation bond rating one notch to Aa1.

Moody’s said Tuesday’s upgrade is partly a result of the strength of the city’s economy and tax base, which are recovering rapidly from the downturn. The move affects $2.2 billion in debt.

“The city family has really worked very hard over the years to improve the city’s financial position and this reflects that we are on the right course,” said Nadia Sesay, director of the San Francisco Mayor’s Office of Public Finance. “We are very pleased to get the upgrade.”

The firm also upped the ratings on some of the city’s real property lease-backed obligation to Aa3 from A1, while confirming existing Aa3 ratings on other obligations.

The outlooks for all the credit ratings are stable.

Moody’s said San Francisco’s financial strengths include an exceptionally large tax base, a wealthy population, a recovering housing market and a large and diverse regional economy.

The company said the city has “sound prospects for continued economic improvement at a rate superior to the likely state and national growth rates.”

The report also tempered its outlook, saying the rating includes the general fund reserve and cash levels that are somewhat weaker than typical for the rating, as well as moderate debt levels.

“The upgrade also incorporates our changed view of the likelihood of default on a California local government’s GO bond relative to obligations secured by its general resources,” Moody’s said.

It said the new view has resulted generally in a widening gap between GO and lease-backed obligation ratings.

Moody’s in October put dozens of California cities on review, most for downgrades, with the exception of San Francisco and Los Angeles. Moody’s on Jan. 23 raised Los Angeles’ GO rating to Aa2 from Aa3.

The firm downgraded San Francisco to Aa2 in 2010.

Fitch Ratings rates San Francisco’s GOs at AA-minus, a two-notch difference from Moody’s, while Standard & Poor’s has San Francisco at AA.

Sesay said the upgrade comes ahead of a full calendar of bond sales this spring.

“We have a huge 10-year capital spending plan and we have capital needs coming on line,” Sesay said. “This is definitely good news for us.”

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