Press Release|Public Finance
KBRA Affirms Ratings for City of Los Angeles, CA G.O. Bonds (AA+) and MICLA Lease Revenue Bonds (AA); Outlook Remains Stable
30 Aug 2023 | New York
KBRA affirms the long-term rating of AA+ for the City of Los Angeles, CA General Obligation Bonds as well as the long-term rating of AA for the following Municipal Improvement Corporation of Los Angeles (MICLA) Lease Revenue Bonds:
- Taxable Lease Revenue Refunding Bonds, Series 2015-A (Los Angeles Convention Center)
- 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 rating was affirmed 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 three of the last 23 fiscal years.
- Established financial management practices including the quarterly updating of revenue and reserve projections and the ability to revise the budget throughout the fiscal year have historically contributed to fiscal stability.
- KBRA continues to view the City’s willingness to address rather than defer rising fixed pension and OPEB costs as a distinguishing characteristic that has served to sustain strong financial flexibility over time.
Credit Challenges
- The City has not identified how it plans to pay for a four-year, $994 million contract with the LAPD. The contract is expected to be a template for the demands of other City labor unions in upcoming contract negotiations. Labor agreements set to expire within the next year may require the City to draw upon reserves and/or reallocate budgeted expenditures in FY 2024 and beyond.
- Despite the FY 2024 Budget’s inclusion of a record $1.3 billion to address homelessness, expenditure overruns may result from the City’s responsibilities under the terms of a proposed settlement of years-long litigation.
- 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 contribute to increases in labor costs and other General Fund spending over the near to medium term.
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 related to the funding of unbudgeted labor cost settlements.
- 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 relating to the City of Los Angeles, CA G.O., click here. To access rating and relevant documents relating to the MICLA Lease Revenue Bonds, click here.