The rating agency also said further downgrades could be looming.
S&P Global Ratings downgraded Los Angeles’ bond valuations due to worsening financial situations and structural imbalances as cities seek to manage a nearly $1 billion budget deficit by reducing certain costs in their 2025-26 budget. Downgrades can lead to increased borrowing costs for the city.
“This budget will continue to invest in continuing to advance key challenges such as reducing homelessness and crime, balance the city’s finances and promote driving change, including common sense integration of related sectors,” Bus said in a city speech last week. “Homelessness is declining. Crime is declining. These are tough challenges and our progress shows that we can do anything in this city with its endless possibilities.”
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The city is recovering from a wildfire in January. This is highlighted by S&P Global in its downgrade statement.
“We believe there is an increasing physical risk factor given the recent wildfires in Los Angeles County and the increasing frequency and severity of such events. The recent urban spread will result in increased urban potential credit risks associated with negative tax-based effects from ongoing wildfires or litigation.”
The Manhattan-based rating agency noted that the Pacific Pallisard community, which was largely destroyed by the wildfires in January, represents a large portion of the high-value properties that could affect the city’s property tax income.
“Consistent with state entities, the city is also exposed to additional physical environmental risks in the form of extreme rain events, earthquakes and droughts,” writes S&P.
S&P Global not only emphasized the city’s budget, but also highlighted the numerous homeless people in the city.
“In addition, the human capital factors associated with unions continue to be key budget inputs for cities. However, we understand that multi-year labor agreements exist for various group of employees,” S&P said.
S&P Global said that management and urban governance fail to make a significant and substantial sustainable spending cuts and that if it decides to bring about additional operating obstacles in 2026, there are three opportunities that could further reduce the rating over the next two years.
“We believe Los Angeles is potentially facing a difficult fight to maintain a structural balance, given evidence that it softens the revenue trends and that it has primarily been linked to personnel costs after the union agreements negotiated in recent years,” the agency said.
Bass traveled to Sacramento on April 23 with a delegation from the city council, demanding nearly $2 billion in state aid.
“The meeting was productive,” Bass told City News Service in a short phone interview Monday evening. “I’m not hoping to leave on a check, but I definitely left with encouragement and support. I need homework in terms of getting more specific information in some areas, but it’s highly encouraged.
Joel Cotkin, a fellow in urban studies at Chapman University, said Los Angeles has been in custody for a long time. He said the downgrade would make it difficult for the city to borrow money.
“You’re more and more of the cities you’re here with very wealthy people and very poor and young people, and you’ve got more and more cities going elsewhere,” Kotkin told the Epoch Times on April 28th.
