L.A.’s current spending cuts aren’t enough for Standard & Poor’s, who has slashed the city’s credit rating down to AA-minus.
Standard & Poor’s acknowledged that officials had taken some steps to close the budget gap, city analysts said — including last week’s authorization to eliminate 4,000 city workers to save as much as $300 million next fiscal year. But analysts continue to be concerned that officials are spending more than they receive in revenue.
The agency downgraded Los Angeles from “AA” to “AA-minus” with a stable outlook.
This will cause millions of dollars in additional costs due to higher interest rates the city will be forced by markets to pay on its obligations. A key test could be when the city plans to issue a $70 million bond within the next few months.
Yet the longer term attitude of L.A. is probably what will matter most. Spending needs to be cut and ridiculous union opposition to economic reality needs to be done away with. Unfortunately, some are simply choosing to pretend like L.A.’s deteriorating credit doesn’t exist:
Xinhua: Councilmen Richard Alarcon and Paul Koretz derided the S&P rating, saying the city should not try to satisfy the credit agencies. “These are the same people who gave Lehman Brothers a good rating just before they went under,” Alarcon said.
“The credit rating agencies, who I despise, are only concerned with getting money to Wall Street. What are they going to do when we dip into our reserves? They are going to hammer us again. We should not take actions just because of them.”
It’s not that L.A. needs to take actions because of the ratings agency, who is simply a messenger (though an imperfect one for sure), it’s that they need to take action for themselves, else sink deeper and deeper into their financial morass. Perhaps start by addressing problems such as the below.
Jacksonville: “In the last 10 years the Los Angeles school system spent $3.5 million trying to fire seven teachers for poor performance out of 33,000 teachers in the system.”