LOS ANGELES -- A strengthening southern California economy allowed Standard & Poor's Corp. yesterday to revise its long-term outlook on Los Angeles's debt ratings to stable from negative.
The negative outlook had been placed on the city's debt in July 1992.
A "stabilizing economy, moderate debt levels, and a strong management team provide a very strong ability [for Los Angeles] to pay debt service," Standard & Poor's said in a municipal credit report.
Los Angeles, the nation's second largest city, is often viewed as an economic barometer for the entire region.
Standard & Poor's also affirmed its AA rating on the city's GO bonds, and said it is maintaining all other ratings on outstanding city obligations.
Similarly, last Friday Moody's Investors Service said it would maintain its Aa1 rating on the city's GO bonds, and also would keep ratings on Los Angeles certificates of participation at current levels. Moody's last adjusted the city's GO rating in July 1993, when it lowered the rating to Aa1 from Aaa.
Los Angeles has $426 million of GOs outstanding, including a $110.7 million offering scheduled for sale today, a city official said. Los Angeles also has about $1 billion of lease obligations outstanding, and is authorized to sell another $340 million of debt.
The city is selling the Series 1994A GO bonds via competitive bidding. Proceeds will be used for earthquake-related strengthening improvements to bridges, city-owned buildings, and police facilities.
The Standard & Poor's outlook change to stable should help the city achieve "a tiny bit" better interest rates, Robert A. Gore, a partner and manager for Crowell, Weedon & Co., said yesterday.
Three or four underwriting syndicates are likely to bid for the city's bonds, but market conditions "may not make [underwriters] too gung ho to step up to the plate," Gore said.
"The return to a stable outlook reflects the city's success in maintaining a satisfactory financial position through several years of unprecedented economic contraction and budgetary pressure," Standard & Poor's said.
Three economic forecasting services -- First Interstate Bank; the University of California, Los Angeles, Business Forecasting Center; and DRI/McGraw-Hill -- agree that "the most dramatic phase of the contraction is over," Chris Irwin, a Standard & Poor's director, said yesterday.
"The city maintained its financial integrity throughout the period of regional recession, defense cutbacks, and the state budget crisis," Irwin said. But, he added, the Los Angeles area economy is only "stabilizing -- it is not necessarily stable.
"There still will be more defense-related jobs lost in the next several years, and that will put a drag on the area's economy and keep [the recovery] modest," he said.
The Los Angeles area has lost 483,000 jobs since 1990, or 11.6% of its total nonfarm employment, much of it from federal defense cutbacks, Standard & Poor's said. Nevertheless, "the area remains an economic engine of considerable size," the agency said.
Separately from city debt, Standard & Poor's and Moody's rate bonds issued for the city's wastewater facilities program, and for so-called enterprise departments, which include the harbor, airport, and water and power departments.
Alex Ocampo, an administrative analyst in the Los Angeles city administrative office, said the enterprise departments are viewed separately by the rating agencies because "they have their own finance departments and revenues."
Standard & Poor's in February revised its outlook to negative from stable on the water and power department's $2.7 billion of electric system revenue bonds, which are rated AA.
"There has been no discussion about changing that outlook at the moment," Irwin said. The water and power department transferred $153 million from its power revenue fund to the city's general fund for the current fiscal year, Standard & Poor's said.
Although Los Angeles has not relied "a lot on budget gimmicks and one-shot revenues," Irwin said the city is relying on fund transfers from the enterprise departments. The transfers "have implications for the city's enterprise operations," he added.
In a release on Friday, Moody's said the city's financial flexibility has been constrained by its "increased dependence on transfers from the department of water and power, the airport, the redevelopment agency, and the harbor department."
"The city's revenue base has eroded in recent years primarily due to the recession and the reliance on economically sensitive revenues within the city's revenue base, as well as state budgetary actions," Moody's said.