Page 223 - 2020-21 Supporting Information Book_Revised

2020-21 PROPOSED BUDGET
BUDGET RESERVES AS A RATING FACTOR

The City of Los Angeles enjoys strong credit ratings from each rating agency compared to other
major urban areas in the nation. These credit ratings reflect a variety of factors, including the
strength and diversity of the City’s tax base, moderate City debt levels, historically strong fiscal
management, and, in particular, the provision of adequate reserves.

The credit rating agencies that evaluate the City’s capacity to repay its debt have consistently
stated that establishing and meeting minimum reserve levels is an important component of their
review of the City’s fiscal health. Thus, in addition to serving as a contingency for unforeseen
challenges that arise during the fiscal year, the level of the City’s reserves is also reviewed by
investors that are considering purchasing the City’s debt.

Rating Rating Date of
Agency Action Action Statements
The City demonstrates the highest level of gap-
AA
Fitch affirmed; April 2020 closing capacity relative to expected revenue
volatility. Reserves in combination with the City’s
Ratings Outllook midrange inherent budget flexibility leave it well
stable
positioned to address future downturns.
AA+ KBRA considers the City’s reserve policies as
Kroll Bond affirmed; providing a strong framework for maintaining
Rating April 2020
Agency Outlook operating flexibility and managing unforeseen
stable budget pressures.
The [rating reflects] strengthened and solid
Aa2 general fund position, supported by . . . the
Moody’s affirmed; implementation of reserve policies put in place in
Investors Outlook April 2020 2011. The revision in the outlook . . . is our
Services positive to changed view of the city’s likely revenue and
stable reserve trajectory; improvement is no longer
possible in the current economic environment.
The ratings reflect our view of the city’s strong
economy and very strong available fund
balances, offset by increased pension
AA contributions. [A factor that could lead to a
S&P Global affirmed; April 2020 downgrade is] if the city is unable to maintain
Ratings Outlook budgetary balance (or reserves decline
stable materially) due to the increased pension
contributions, renegotiated labor contracts
evolving federal policies, or other, unforeseen
reasons.

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