Page 215 - FY 2021-22 Supporting Information

2021-22 PROPOSED BUDGET
BUDGET RESERVES AS A RATING FACTOR

The City of Los Angeles maintains strong credit ratings from each rating agency. 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 reviewed by investors who purchase
municpal bonds.

Rating Rating Date of
Agency Action Action Statements
The City demonstrates superior gap-closing
AA capacity relative to expected revenue volatility.
affirmed; Reserves in combination with the City’s
Fitch December
Ratings Outlook 2020 midrange inherent budget flexibility have
Stable to provided the City with useful resources and
Negative budget management options to address the
current significant economic downturn.
KBRA believes that the City’s ability to control
AA+
Kroll Bond affirmed; February operating expenditures and rebuild reserves,
which from FY2012 through FY2019, had been
Rating Outlook 2021 maintained at or above the City’s Reserve Fund
Agency Stable to Policy of 5% of General Fund revenues, will be
Negative
vital to its continued fiscal stability.
Aa2 [One of several factors] that could lead to an
Moody’s affirmed; upgrade [is] continued strong financial position,
Investors Outlook August 2020 including maintaining or building available
Services
Stable reserves.
We could take a negative rating action if local
economic activity remains muted for a prolonged
period—with persistent high unemployment rates
continuing well after the effects of COVID-19
AA have moderated in most of the rest of the
S&P Global affirmed; February country—and this leads to continued
Ratings Outlook 2021 underperformance of economically sensitive
Stable
revenues. Under this scenario, if the City is
unable to maintain budgetary balance and
reserves are further drawn down, then we could
lower the ratings.

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