Los Angeles --
Mayor Garcetti announced today that Moody's Investors Service has upgraded the city's lease ratings from A2 to A1 and has reaffirmed the city's Aa2 general obligation rating. Higher credit ratings result in lower borrowing costs for the city, which saves taxpayer dollars.
"As the city's CEO, I'm committed to putting our fiscal house in order. Our focus on reducing pension costs, increasing budget reserves, and growing our economy is paying off for L.A. residents through better credit ratings and lower interest payments, which frees up money for neighborhood investments," Mayor Garcetti said.
The Moody's report states: "The second-largest city in the US is well positioned to strengthen its strong credit profile given a resilient and growing tax base, a highly diverse economy, and gradually growing reserves. The city’s strong financial management has curtailed expense growth, including significant pension costs in the wake of the Great Recession; prudently positioned the city to grow reserves with an expanding economy; and ultimately, reversed the four-year budget outlook from growing deficits to a declining trend with a small surplus in 2019."
"Key factors in the city’s improving credit profile include:
- "A highly diverse and growing tax base and economy, despite persistent challenges associated with below average socioeconomic indicators: In fiscal year 2015, the tax base increased more than 6% to a largest-ever $464 billion, and the city projects growth at slightly more conservative pace in its four-year outlook. The employment base is diversifying with trade, technology and entertainment as important drivers of future growth. Unemployment rates for the city have improved, though still exceed the state and nation.
- "Strong financial management enabling the city to grow reserves: Four consecutive years of operating surpluses have grown reserves after deficits in the previous five years. Strong financial management has kept expenditure growth at bay since major cuts were implemented in 2010 and 2011. Additionally, the city has met or exceeded its minimum reserve level threshold since then. Most significantly, the city’s four-year budget outlook has reversed course and the city now projects reaching surplus operations in 2019.
- "Fixed costs related to pensions and retiree health benefits, while significant, make up a manageable proportion of city expenditures: A city policy requiring greater employee contributions towards retirement benefits has helped rein in costs, which are projected to peak in 2017 and then level out. Additionally, funding of retiree health benefits (also known as Other Post-Employment Benefits, or OPEB) compares favorably to most cities since Los Angeles has pre-funded its obligation since 1989, while consistently contributing at least the annual required contribution (ARC)."
Earlier this year, Standard & Poor revised its outlook for the City of Los Angeles’ general obligation (GO) bonds from “stable” to “positive” and affirmed its “AA-" long-term rating and underlying rating. In addition, Standard & Poor affirmed its “A+” rating for the City's appropriation-backed debt and assigned its “A+” rating to the Municipal Improvement Corporation of Los Angeles series 2014-A and 2014-B lease revenue bonds. Standard & Poor’s positive outlook reflects Los Angeles' "strong liquidity," "strong management," "strong budgetary flexibility," and "strong economy."
In addition, each of the "Big Three" credit rating agencies -- Fitch Ratings, Moody's Investors Service, and Standard & Poor's Rating Services -- earlier this year assigned the highest possible ratings to the City's 2014 Tax and Revenue Anticipation Notes due to strong financial management practices and an improving, large, and diverse economy. The notes were sold at a yield of 0.11 percent, the lowest interest rate achieved in the City’s history.
“These consistently higher ratings recognize our prudent budgeting, including increasing our reserves to the highest level in the city’s history,” said Mayor Eric Garcetti.