The city will be able to borrow at lower cost thanks to an improved credit rating from Moody’s Investors service, Los Angeles Mayor Eric Garcetti said Monday.
The credit rating inched up a notch from A2 to A1, and the city’s Aa2 general obligation rating was reaffirmed, reflecting Moody’s conclusion that Los Angeles is “well positioned to strengthen its strong credit profile given a resilient and growing tax base, a highly diverse economy and gradually growing reserves.”
Garcetti hailed the news, saying “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 in turn “frees up money for neighborhood investments.”
Moody’s report states that the higher credit rating reflects the improved economic outlook in the Los Angeles area. The report notes that the city has seen its tax base grow by over 6 percent to $464 million so far this fiscal year, which is greater than projected; the jobs market is diversifying and includes major industries such as trade, technology and entertainment; and its unemployment rate is declining.
Moody’s also rewarded the city for making significant cuts to spending in 2010 and 2011, and carrying surpluses for four consecutive years, which has helped increase the reserve fund. The city also now projects a surplus in 2019.
Moody’s also cited the city’s policy of requiring employees to contribute more toward their retirement benefits. The city’s funding of its retiree health benefits is also comparable to other municipalities, with the city continuing to contribute at least the annual required amount since 1989.
Another rating company, Standard & Poor’s, earlier this year also cited an improved outlook for the city’s general obligation bonds, which were revised from “stable” to “positive”; kept an A+ rating for the city’s appropriation- backed debt; and gave an A+ rating to its Municipal Improvement Corporation of Los Angeles series 2014-A and 2014-B lease revenue bonds.
The city’s Tax and Revenue Anticipation Notes, which allow the city to borrow money to continue day-to-day operations in between revenue payments, received the highest ratings possible from the top three rating agencies — Fitch Ratings, Moody’s Investors Service and Standard & Poor’s. Those notes were sold at an 0.11 percent yield.
— City News Service