The bonds are scheduled to be sold via negotiation on
In addition, Fitch affirms the following ratings:
The Rating Outlook is Stable.
The MICLA lease revenue bonds and COPs and the convention center authority lease revenue bonds are secured solely by the city's covenant to budget and appropriate lease rental payments for use and occupancy of various facilities and equipment, subject to abatement.
The GO bonds are secured by ad valorem property taxes levied without limitation on rate or amount upon taxable properties within the city. The judgment obligation bonds are secured by the city's absolute and unconditional obligation to pay principal and interest to refund an obligation imposed by law.
KEY RATING DRIVERS
CITY'S INHERENT ECONOMIC IMPORTANCE: The city is the commercial and cultural center of a very large, diverse economy that is benefitting from revenue and property market improvements, despite an unemployment rate which remains stubbornly high.
BUDGETARY STRUCTURAL IMBALANCE: The city's four-year financial projections indicate decreasing structural imbalance, but some of the underlying assumptions rely on further labor concessions and static levels of service provision which will likely prove difficult to achieve.
CHALLENGING POLITICAL ENVIRONMENT: The city's challenging political and labor environment can hinder its ability to respond swiftly to budgetary pressures. Labor is reluctant to agree to further concessions, and the public's desire for service restorations could create spending pressure.
MANAGEABLE LONG TERM OBLIGATIONS: Fitch expects the city's debt ratios to remain moderate but notes the increasing pension and other post-employment benefit (OPEB) costs resulting from past investment losses and the liabilities associated with both banked police overtime and litigation.
The rating is sensitive to shifts in fundamental credit characteristics, including the city's strong financial management practices and ongoing ability to reduce its general fund structural imbalance.
The unemployment rate remains elevated at 8% in
FINANCIAL OPERATIONS STILL UNDER PRESSURE
Despite an initial significant budget gap, fiscal 2013 ended with a strengthened unrestricted general fund balance of
In fiscal 2014, the city faced an initial general fund gap of
The city is projecting that its fiscal 2014 emergency reserve, contingency reserve, and budget stabilization fund will cumulatively amount to at least 8.4% of general fund revenues (once fiscal 2015 encumbrances, departmental reappropriations, and loan reconciliations have been factored in), up from 5.1% in fiscal 2013. This strengthening of general fund balance and reserves is despite 60% of civilian employees refusing to give up an already agreed-to 5.5% pay increase on
To close a further, larger budget gap of
The city is projecting decreasing general fund budget gaps in fiscal years 2016-2018 and then, for the first time since 2009, a general fund budget surplus of nearly
The city has demonstrated that it can implement significant actions to respond to economic contraction and its personnel-related expenditure pressures, and management retains a range of budget options to achieve greater structural balance. However, implementing them will require difficult political decisions and greater political unity than has always been demonstrated in the past, further labor concessions (difficult in light of those already achieved), and new revenues. The failure of a
MODERATE OVERALL DEBT BURDEN
Net overall debt is moderate at
For fiscal 2013, the city reported that its pension systems, the
There has been an administrative challenge to the new civilian pension tier. On
Despite successful negotiations to cap retiree health benefit costs, there are challenges currently working their way through the legal system and the city's annual OPEB contributions will continue to rise. LACERS' OPEB funded ratio was 71.9% in fiscal 2013, compared to a high of 78.6% in fiscal 2011. FPPP's OPEB prefunding ratio is a much weaker 38.5%. However, both these levels of prefunding remain notably high for municipal OPEB systems.
The city has considerable banked overtime accrued by police officers. The accrued 2.6 million hours are currently valued at approximately
The city also has large potential general fund liabilities related to litigation. At
In fiscal 2013, combined debt service payments, annually required pension contributions, and OPEB pay-as-you-go costs were a manageable 20.8% of total governmental fund expenditures.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from CreditScope,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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