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City's Credit Rating May Take a Hit

Borrowing money may become more expensive

By Scott Weber

| Tuesday, Feb 9, 2010 | Updated 9:45 AM PDT

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The City's financial news just keeps getting worse. Representatives from two credit rating agencies have expressed concern about Los Angeles' precarious financial position. The City Council's indecision on budget cuts last week hasn't helped.

In a memo to Mayor Antonio Villaraigosa and City Council members, City Administrative Officer Miguel Santana said Fitch Ratings told one of his aides they were monitoring a number of factors that could lead them to downgrade the city's credit rating, the Los Angeles Times reported.

The erosion of the city's reserves, the city's structural deficit and the failure of city officials to reduce the size of the city's workforce are all contributing factors. Later Monday afternoon, Moody's Investors Service also told city budget analysts they were concerned that the council had not adopted certain midyear budget adjustments to deal with a $212 million shortfall, according to The Times. Next year, the city's deficit is expected to rise to $484 million.

Last November, Fitch downgraded the city's credit rating on $2.94 billion in debt -- a move that made it more expensive for the city to borrow money.

Later Tuesday, the council will revisit the three-year budget plan outlined by Santana. Villaraigosa, who last week ordered the elimination of 1,000 jobs, will make a guest appearance to lay out additional recommendations to deal with the budget crisis.