L.A. Credit Boosted to Aa2 by Moody’s on Growing Tax Base

Los Angeles got its first credit- rating increase in more than 20 years from Moody’s Investors Service, which cited growth in property taxes in the nation’s second most-populous city.

The action, lifting the city’s general-obligation rating to Aa2, the third-highest level, from Aa3, affects $3.3 billion in outstanding debt, Moody’s said yesterday in a statement.

Property taxes are expected to yield about $1.5 billion, or about 20 percent of the city’s general revenue, in the year ending June 30, up from $1.4 billion in fiscal 2012, according to city budget documents.

“Despite the last few years’ extreme housing market volatility, the assessed valuation of Los Angeles’ property tax base has proven quite stable and is now on an upward track,” Moody’s said in its report. “Assessed valuation growth in the past two fiscal years has more than compensated for the slight declines that occurred in the prior two years.”

Moody’s said Los Angeles continues to have a “substantial structural deficit” and must deal with growing pension and employee health-care costs. The city has little ability to raise taxes to cover the costs, the ratings company said.

The Los Angeles City Council voted in November to ask residents to boost the local sales tax 0.5 percentage point, bringing the total levy -- local and state -- to 9.5 percent. In the previous month, the council voted to raise retirement ages for new employees to 65 from 55 and to reduce pension benefits.

Moody’s cut Los Angeles to Aa3 in April 2010. The ratings company hadn’t raised the city’s rating in at least 20 years, a company spokesman, David Jacobson, said by telephone.

To contact the reporter on this story: James Nash in Los Angeles at jnash24@bloomberg.net

To contact the editor responsible for this story: William Glasgall at wglasgall@bloomberg.net

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