Press Release|Public Finance
KBRA Downgrades City of Los Angeles, CA GO Bonds to AA and MICLA Lease Revenue Bonds to AA-; Outlook is Negative
1 May 2025 | New York
KBRA downgrades the long-term ratings for the City of Los Angeles, CA General Obligation Bonds to AA (from AA+) and the following Municipal Improvement Corporation of Los Angeles (MICLA) Lease Revenue Bonds to AA- (from AA):
- Lease Revenue Refunding Bonds, Series 2016-A (Capital Equipment)
- Lease Revenue Refunding Bonds, Series 2016-B (Real Property)
- Lease Revenue Bonds, 2018-A (Capital Equipment)
- Lease Revenue Bonds Series 2018-B (Real Property)
- Lease Revenue Refunding Bonds, Series 2018-C (Real Property - Taxable)
- Lease Revenue Bonds, Series 2020-A (Capital Equipment)
- Lease Revenue Bonds, Series 2020-B (Real Property)
- Lease Revenue Refunding Bonds, Series 2020-C (Real Property) (Federal Taxable)
- Lease Revenue Refunding Bonds, Series 2021-A (Capital Equipment and Real Property) (Federally Taxable)
- Lease Revenue Refunding Bonds, Series 2021-B (Capital Equipment and Real Property) (Tax-Exempt)
- Lease Revenue Bonds, Series 2021-C (Capital Equipment and Real Property)
The rating Outlook is Negative. The actions resolve the Watch Downgrade status applied to these credits on January 16, 2025.
Key Credit Considerations
The rating was downgraded because of the following key credit considerations:
Credit Positives
- The City’s large and diverse tax base has demonstrated solid growth in assessed valuation in all but two of the last 24 fiscal years.
- Established financial management practices including quarterly revenue and reserve updates, mid-year budget revision and limits on the use of one-time General Fund revenues for ongoing expenditures have historically contributed to fiscal stability.
- The City has consistently addressed rising pension and OPEB contributions, resulting in favorable pension and OPEB funding metrics, which, though contributing to elevated fixed costs, facilitate long-term financial flexbility.
Credit Challenges
- The cost and economic dislocation of the January 2025 wildfires may exacerbate the City’s fiscal challenges, particularly if anticipated federal assistance is not realized.
- Recent police and civilian employee labor agreements contribute to projected budgetary structural imbalance through FY 2028.
- Despite efforts to increase appropriations to match anticipated spending, FY 2026 overspending is likely in certain accounts, including litigation, outside counsel costs, and liabilities claims.
- A deterioration in macroeconomic conditions, including declining consumer spending and employment could pressure General Fund revenues, while inflation may continue to contribute to increases in labor costs and other General Fund spending over the near to medium term.
Rating Sensitivities
For Upgrade
- Maintenance of structural balance through prudent budgeting, the realization of assumed revenue growth and strict control of costs.
- Maintenance of a minimum balance in the City-Charter established Reserve Fund of at least 5% of budgeted General Fund revenue.
For Downgrade
- The inability to replenish General Fund reserves to policy minimums in FY 2026, and/or material near-term declines in the unassigned General Fund balance or available governmental funds liquidity.
- A trend of structural imbalance leading to decline in available fund balances and operating reserves.
- A significant decline in funding progress with respect to the City’s pension and OBEB obligations.
To access ratings and relevant documents, click here.