L.A.'s budget director concerned about ripple effects of S&P downgrade

Just got off the phone with City Administrative Officer Miguel Santana, who said he doubted there would be any ratings downgrade directed specifically at the city of L.A. But that doesn't rule out the possibility that last week's S&P's downgrade of U.S. debt won't result in downward adjustments across the board. From Bloomberg:

"There will be hundreds and hundreds of municipal downgrades, which will not do well to bolster investor confidence," Matt Fabian, a managing director of Concord, Massachusetts-based Municipal Market Advisors, said in a telephone interview. "Treasuries may be able to shake off a real impact from the downgrade. Munis I'm less sure about."

L.A.'s status with the ratings agencies has been a bit schizophrenic of late. On the one hand, Moody's recently raised the outlook on the city's long-term ratings to stable from negative, the result of labor agreements earlier this year that put somewhat of a dent in the pension and health-care shortfalls. Also, the city was able to borrow $1.3 billion in short-term loans at unusually low interest rates after budget officials presented an improving story to investment firms and banks. But despite those positives, Moody's downgraded the city's bond rating to Aa3, the fourth-highest level, citing those same pension and health-care shortfalls - as well as the difficulty in raising new revenues. Any further downgrade would move the city into only so-so ratings territory and might set the stage for higher borrowing costs. But Santana was sounding more concerned about what Friday's S&P downgrade means for the overall health of the U.S. economy, and how that will impact Southern California. If we're headed for another recession - or even near-recession - every municipality becomes vulnerable.