Posted on 04/26/2025 9:19:54 AM PDT by DFG
Standard & Poor’s 500 downgraded its credit rating of city of Los Angeles general obligation bonds, citing its “weakening financial position and an emerging structural imbalance.” Los Angeles faces a $1 billion deficit, having burned through its once-record reserves in just two years.
Los Angeles Mayor Karen Bass is currently seeking a state bailout, but given that the state says it has “no capacity” for new spending commitments, it’s unclear if the funding will materialize.
S&P warns that if trends continue, it could further downgrade the city’s credit rating, which would further increase borrowing costs due to higher associated risk of default.
At AA-, the new rating still means the city’s bonds are investment grade and well above the junk bond threshold of BB+. However, without changes, S&P warns that there’s a one-in-three chance that it could downgrade the city’s credit rating yet again, reflecting anticipated difficulty in cutting runaway spending.
“The negative outlook also acknowledges various difficulties that could challenge the city’s efforts to achieve structural balance and restore its reserve fund in the near term: heightened litigation risk, limited flexibility to unilaterally reduce personnel costs under current labor contracts, and slowing economic growth, notwithstanding any additional lasting economic and revenue impacts from the wildfire events across Los Angeles County in January 2025,” wrote S&P.
Under the last budget from former mayor Eric Garcetti, Los Angeles had a record $648 million in reserves. Bass spent half of the reserves in just one year, leading City Controller Kenneth Mejia to warn in 2024 that the city is “going broke,” and would soon have so little reserves left it would be required to declare a “fiscal emergency” — highlighting how the city’s financial woes are structural and pre-date the January wildfires.
(Excerpt) Read more at economiccollapse.report ...
One billion one billion bada bada bada let’s go for two two billion two billion two two two
This matters a great deal. As Steve Bannon likes to say, throughout history, the bond market has turfed out more governments than howitzers.
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