(The Center Square) – S&P Global Ratings noted the “strength and resilience of the L.A. regional economy” in a communication that suggests that local government credit ratings may emerge impacted little by the fires, but that longer-term challenges remain.
“Given the strength and resilience of the L.A. regional economy, the direct impact of the L.A. wildfires on local government credit quality is expected to be limited, even as the area experiences significant damage and loss,” wrote S&P. “However, the increasing frequency and severity of wildfires in urbanized areas in California will require local governments and utilities to meet a higher standard of risk resilience for infrastructure and services.”
Last week, 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.”
Bond ratings are important to local governments because they determine the interest rate governments will pay to borrow money. With Los Angeles City Controller Kevin Mejia declaring the city “broke” as it borrows money to pay court-mandated settlements, higher interest rates would put even more pressure on an already-stretched city budget.
S&P’s latest communication noted that while not severely impacted by the wildfires, long-term trends may not bode well for Southern California governments.
“Beyond the horizon of this event, increased costs will likely push debt burdens higher and exacerbate tax and rate-setting pressures in a region already facing affordability constraints,” said S&P Global Ratings credit analyst Daniel Golliday in a statement.
