S&P Maintains City’s Credit Rating Notes Unemployment Remains A Drag On Local Economy
By Joshua H. Silavent
November 6th, 2012 – Standard & Poor’s (S&P) has reaffirmed the City of Long Beach’s AA- issuer credit rating following a performance review this past summer.
“Standard and Poor’s said what we expected them to say,” City Finance Director John Gross told the Business Journal.
According to the S&P report, “The stable outlook reflects Standard & Poor’s opinion that Long Beach will likely sustain its good financial performance, including the maintenance of strong reserves, during a period of revenue stress.”
The October 4 report, obtained by the Business Journal, states that the city has maintained a “good financial performance, including managing through a period of softening revenue streams, with reserves of at least 10 percent of expenditures.”
In addition, the report states that a moderate level of debt and economic ties to the larger Southern California region benefits the city’s general creditworthiness. However, S&P believes “what we consider the city’s above-average unemployment somewhat tempers these factors.”
The city’s strong overall AA- credit rating is fairly equivalent to the Aa2 issuer rating given by Moody’s Investors Service – which is currently under review for downgrade, as reported in the Business Journal October 23 – Gross said.
Moody’s is reportedly looking into the fact that the city’s financial reports do not reflect a $100 million loan, owed by the now-defunct redevelopment agency (RDA), previously on the books as a general fund receivable.
“S&P is aware of and has looked at the fact that the receivable is no longer on the books,” and it did not impact the rating score, Gross said.
As a result of the state’s elimination of the RDA, the loan was removed from the city’s books, causing the reported total fund balance to drop dramatically, though it had no impact on cash, or the city’s emergency or operating reserves, Gross told the Business Journal. He added that the city expects to put the loan back on its books soon.
“[The S&P] report is a confirmation of Long Beach’s fiscal responsibility and prudent stewardship of public dollars,” Mayor Bob Foster said in a statement. “Long Beach has a history of addressing our budget shortfalls every year through managed structural budget reductions, without relying on reserves or one-time funding sources that can lead to financial stress.”
The S&P review will not likely reduce the city’s costs to borrow, but rather keep things as they are, “which is pretty darn good,” Gross said. Moreover, the city’s last sale of tax anticipation notes reflects an even stronger financial position, Gross said.
“In the most recent sale, we sold at levels that reflected a very strong view, higher than our actual rating,” he added. “So our perceived strength was higher than even that good rating, at least for that one transaction.” The S&P report, however, concludes with this caveat: “While we do not expect to change the rating within the outlook’s two-year period, we could lower the rating or revise the outlook to negative if reserves were to decrease or if the city were to fall out of structural balance.”
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