L.A. Unified District Receives Slight Credit Downgrade

A major Wall Street rating service slightly downgraded the credit worthiness of the Los Angeles city schools Monday, citing several factors, including budget slashing and salary negotiations.

Fitch Ratings retained the school district’s high AA rating, but changed its outlook from stable to negative.

The negative assessment was meant as a warning to Los Angeles Unified and its investors, said Jeffrey Burger, of Fitch’s public finance department.

Fitch could issue another warning, or downgrade the L.A. Unified’s bond rating, if the district’s financial outlook does not improve, he said. That could happen as early as this spring.

Chief financial officer Joe Zeronian said a downgrading could cost the district .05% on the money it borrows. But because the rate did not change, there should be no effect on the $850,000 in new bonds the district is floating this week.

Fitch said it did not lower the district’s high rating because it has a diversified economic base and moderate debt. However, it said the district still must secure financing for a large portion of its school building program and is also facing its second year of budget cutting because of salary increases in excess of cost-of-living adjustments and reduced state aid.

Burger said the rating agency will continue to monitor the district’s finances, paying special attention to the outcome of labor negotiations with the teachers union and of two new school construction bonds that will be presented to voters--one locally and another for campuses statewide--in November.