Press Release|Public Finance
KBRA Affirms AA+ Rating for City of Los Angeles, CA General Obligation Bonds and AA rating for MICLA Lease Revenue Bonds; Outlook Stable
28 Aug 2024 | New York
KBRA affirms the long-term rating of AA+ for the City of Los Angeles, CA General Obligation Bonds, and affirms the long-term rating of AA for the following Municipal Improvement Corporation of Los Angeles (MICLA) Lease Revenue Bonds:
- 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)
Key Credit Considerations
The ratings were affirmed because of the following key credit considerations:
Credit Positives
- Large and diverse tax base that 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 and the ability to revise the budget throughout the fiscal year have historically contributed to fiscal stability.
- The City’s willingness to address rather than defer rising pension and OPEB contributions has resulted in favorable pension and OPEB funding metrics, which, though adding to elevated fixed costs, facilitate long-term financial flexbility.
Credit Challenges
- Recent police and civilian employee labor agreements which required the City to draw upon reserves and reallocate budgeted expenditures in FY 2024 contribute to projected budgetary structural imbalance through FY 2028.
- General Fund revenues are economically sensitive. 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.
- Programs to reduce the number of unhoused individuals demonstrate some recent success but are expected to continue to impose significant operating costs. Voter approved Measure ULA revenue dedicated to addressing homelessness is tracking well below projections.
Rating Sensitivities
For Upgrade
- A trend of surplus operations and growth in unassigned general fund balance.
For Downgrade
- The depletion of General Fund reserves below policy minimums or a material decline in the unassigned General Fund balance or available governmental funds liquidity.
- A trend of structural imbalance leading to significant decline in available fund balance and operating reserves.
- A significant decline in funding progress with respect to the City’s pension and OBEB obligations.
To access rating and relevant documents, click here.