Credit rating agency S&P placed a credit watch warning on Los Angeles’s general obligation and municipal improvement lease revenue bonds, signaling at least a one-in-two chance that the agency could “take a negative rating action during the next 90 days.”
L.A.s general obligation bonds are currently rated at AA, while its municipal improvement corporation leave revenue bonds are rated AA-. A reduction in credit ratings would make borrowing more expensive to reflect higher risk.
“The CreditWatch placement reflects our view of the city’s weakening financial trends and the introduction of additional credit risk tied to the multiple wildfires that began on Jan. 7, 2025,” said S&P Global Ratings credit analyst Amahad Brown in a statement. “We believe that the fires and reports of widespread damage introduced heightened risk of credit deterioration for the Los Angeles Department of Water and Power, which could pressure the city’s finances, in addition to near-term risk to the city’s property tax base and financial position.”
One week ago, S&P warned California’s ongoing wildfires could put the credit ratings of affected utilities and government agencies at risk. In prior years, S&P has also warned that California out-migration resulting from fire-related insurance issues could put public finances at risk.
Late last year, City Controller Kenneth Mejia declared L.A. is “broke” and would need to borrow money to cover court-ordered payments, reflecting the city’s ongoing financial difficulties.
Mejia had strong words for city leaders over a $17.5 million cut to the Los Angeles Fire Department, noting 61 staff positions in support positions had been cut.
“Seeing City officials in the press ignore the severe impacts of these budget cuts, especially the ones covering for their poor budget decisions to cut a majority of departments’ budgets & even after Chief Crowley told them about the impacts these cuts have had, is disgraceful,” said Mejia on X. “If these fires happened in August or October, would these same City officials then admit that LAFD’s budget got cut in July where 61 civilian support positions were eliminated and sworn payroll and expenses were reduced?”
