S&P World Rankings has lowered the bond rankings for the town of Los Angeles, which is making an attempt to shut an almost $1-billion finances deficit.
On Friday, the credit standing company downgraded its long-term score for the town’s basic obligation bonds to AA- from AA.
It additionally lowered the score for the Municipal Enchancment Corp. of Los Angeles’ lease income bonds, that are used to buy metropolis tools akin to fireplace vehicles, to A+ from AA-.
“The downgrade displays the town’s weakening monetary place and an rising structural imbalance,” S&P World Rankings wrote in saying the adjustments.
S&P mentioned it was involved concerning the fast deterioration of the town’s reserve fund, which is meant to stay at 5% or extra of the final fund.
To shut a niche within the 2024-25 finances, metropolis officers drew on the reserve fund, which fell to 3.22% of the final fund.
S&P mentioned the bond rankings may lower additional if the town doesn’t rapidly make changes to the administration of its finances.
The bond score downgrades got here days after Mayor Karen Bass outlined the town’s stark financial scenario in her proposed finances for 2025-26, which incorporates shedding about 1,650 metropolis staff.
Bass described the doable layoffs as “a choice of absolute final resort,” touring to Sacramento on Wednesday to hunt state cash to avoid wasting the roles.
Decrease bond rankings usually translate to greater rates of interest, which is able to make it dearer for the town to borrow cash.
S&P mentioned it additionally primarily based its adverse outlook on components akin to “heightened litigation danger, restricted flexibility to unilaterally scale back personnel prices beneath present labor contracts, and slowing financial progress, however any extra lasting financial and income impacts from the wildfire occasions throughout Los Angeles County in January 2025.”
Bass mentioned the steps she is taking to steadiness the finances ought to assuage among the score company’s issues.
“This announcement was sadly anticipated given the downturn and turbulence within the financial system, and within the context of many years of inefficiencies which have been built-in to the way in which the town operates,” she mentioned in a press release. “Defending our bond rankings is a key cause why I pushed for elementary reforms within the 27 months that I’ve been mayor.”
S&P famous that Bass’ 2025-2026 proposed finances “identifies potential structural reforms, which we contemplate to be an vital step towards correcting the fiscal imbalance.”
