Page 233 - FY 2022-23 Supporting Information

2022-23 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
municipal bonds.

Rating Rating Date of
Agency Action Action Statements
The City demonstrates superior gap-closing
capacity relative to expected revenue volatility.
Reserves, in combination with the City's
midrange inherent budget flexibility, have
provided the City with useful resources and
AA
Fitch affirmed; October budget management options to address
downturns. The City has a pattern of building
Ratings Outlook 2021 up reserves during periods of economic
Stable
and revenue strength and drawing them down
when necessary. As the economy continues to
recover from the pandemic, Fitch
anticipates Los Angeles will again rebuild
reserves and restore fiscal flexibility.
The City’s decision to rebuild the FY 2022
AA+ Reserve Fund to a level that exceeds the 5%
Kroll Bond affirmed; November Reserve Fund policy demonstrates its
Rating Outlook 2021 commitment to the sound reserve policies that,
Agency
Stable in KBRA’s view, facilitated operating flexibility
throughout the pandemic.
The rating further reflects the City's solid general
Aa2
Moody’s affirmed; October fund position, supported by nine years of healthy
Investors Outlook 2021 revenue increases and solid reserve policies,
Services which combined to put the City in a solid position
Stable
as it entered the pandemic.
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-
AA
S&P affirmed; October 19 have moderated in most of the rest of the
Global Outlook 2021 country—and this leads to continued
Ratings underperformance of economically sensitive
Stable
revenues. Under this scenario, if the City is
unable to maintain budgetary balance and
reserves are drawn down further, then we could
lower the ratings.

207