By Ian Mckendry
WASHINGTON (MNI) – Moody’s downgraded Los Angeles general
obligation debt Wednesday, from Aa3 to Aa2 which, affecting
approximately $3.2 billion in debt.
The downgrade occurred after the L.A Department of Water and Power
said it would withhold a $73 million payment to the city, in part
because of rising coal costs.
Moody’s said the DWP withholding of those funds affects itws
outlook on the city’s credit worthiness down the road and applied a
negative outlook.
“Given the likely difficulty in rebuilding reserves according to
the city’s three-year plan — particularly in the current economic
environment — our rating outlook for the city’s general obligation and
general fund ratings remains negative,” Moody’s said, in what some
analyst see as part of the beginning of a spreading muni crisis.
Moody’s added that the city underestimated the toll the recession
would take on its revenues.
The $73 million reduction in payments to the city by the DWP would
present a material challenge, but not an unmanageable one, Moody’s said.
Moody’s did say that city also has some positives that balance it’s
outlook.
“Our rating continues to reflect the city’s very modest and
rapidly retired direct debt burden, as well as an extremely diverse
economic base that has likely reached the low point of the current
economic cycle,” Moody’s said.
“Were the city to successfully implement its three-year budget
plan, structurally balancing its general fund budget while materially
rebuilding reserves, an upgrade could be warranted,” it added.
Mayor of Los Angeles Antonio Villaraigosa called for the city
to shut down “non-essential agencies” two days a week on Tuesday, to
save on energy and employee costs.
The mayor has been in a spat with the City Council which voted down
a proposal by the DWP to raise consumer energy rates.
** Market News International Washington Bureau: 202-371-2121 **
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