Moody's Investors Service lowered its rating on Los Angeles' outstanding general obligation bonds by one notch Tuesday, citing the city's limited financial flexibility and ongoing cost pressures.
Moody's knocked Los Angeles' general obligation debt rating down to Aa3 from Aa2 and revised its outlook on the long-term rating of the second biggest U.S. city to stable from negative.
Moody's in a statement said Los Angeles, California's biggest city, has suffered five consecutive years of general fund deficits and the "currently very slow economic recovery suggests that Los Angeles' revenue growth will continue to materially lag its likely expenditure growth."
Los Angeles, like other city's throughout California, has been hurt by the housing downturn, mortgage market meltdown, recession, weak consumer spending and high unemployment.
"Following the economic downturn, the city has made significant progress in bringing its cost structure in line with its reduced revenue base," Moody's said, " but currently scheduled labor compensation adjustments and projected retiree cost increases will continue to put pressure on the city's general fund budget for the foreseeable future."
California's unemployment rate stood at 11.7 percent in May, the second highest rate of any state, and in the Los Angeles metropolitan area the month's jobless rate was 11.9 percent.
Moody's also assigned an Aa3 rating on Los Angeles' 2011 A and B general obligation bonds, and it lowered by one notch its ratings on the city's judgment obligation bonds to A1 from Aa3, obligations secured by real property leases to A2 from A1 and capital equipment lease-secured obligations to A3 from A2.
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