So, like, S&P Global Ratings went ahead and dropped the bond ratings for Los Angeles recently. They’re dealing with a massive budget deficit, almost $1 billion! On Friday, the agency decided to downgrade the city’s general obligation bonds from AA to AA- and also gave a lower rating to the Municipal Improvement Corp. of Los Angeles’ lease revenue bonds, going from AA- to A+.
S&P mentioned that the reason behind this move was the city’s financial troubles and a structural imbalance that’s starting to show. They’re especially worried about how quickly the city’s reserve fund is shrinking. See, it’s supposed to be at least 5% of the general fund, but it fell to 3.22% during the 2024-25 budget year. If LA doesn’t figure out how to manage their money better, these bond ratings might drop even more.
This all happened not long after Mayor Karen Bass talked about the city’s tough economic situation in the proposed budget for 2025-26. She’s thinking about laying off around 1,650 city workers, which she called a “decision of absolute last resort.” Bass even went all the way to Sacramento to ask for state funds to save those jobs. It’s a tough situation, and lower bond ratings mean higher interest rates, which LA really doesn’t need right now.
S&P also pointed out some other issues they have with the city, like a higher risk of legal problems, not being able to cut costs easily because of labor contracts, and slow economic growth. And let’s not forget about those wildfires back in January 2025, which messed with the economy too. Bass believes that the steps she’s taking to balance the budget will calm S&P down a bit. She mentioned that she saw this coming because of the economy’s downturn and all the inefficiencies that have been around for years. She’s been mayor for 27 months and has been trying to make big changes to protect the city’s bond ratings.
The proposed budget for 2025-2026 that Bass came up with has some ideas for fixing the city’s money problems. S&P thinks these reforms could help fix the fiscal mess LA is in. Let’s hope they work out, right?
