San Francisco Downgraded, Including Emergency Earthquake Bonds

Moody's has in one day downgraded the city of brotherly love and the city of same sex love, putting a kabosh on the Beatles theory that "all you need is love".

Moody's Investors Service has downgraded to Aa2 from Aa1 the rating on the City and County of San Francisco's General Obligation Bonds and assigned an Aa2 rating to the city's General Obligation Bonds (Earthquake Safety and Emergency Response Bonds, 2010) Series 2010.

Moody's also downgraded by one notch our ratings on the city's various general fund obligations, including its abatement leases and settlement obligation bonds.

Moody's said:

The downgrade primarily reflects the city's very narrow financial position and the minimal prospect of material improvement in the near term. The city ended fiscal 2009 with a balance sheet that was weaker than at any time in the prior ten years and extremely weak by comparison with other similarly rated local governments. Its fiscal 2010 and 2011 budgets both relied heavily on one-time solutions, including draws on reserves, to close sizable projected budget gaps, suggesting that final audited results will show little balance sheet improvement. The lackluster economy cannot be expected to provide substantial relief in the near term. Recent reports from the state confirm that its fiscal challenges continue to loom large, which in turn injects revenue risk into the city's current and next year budgets. The defeat in the election earlier this month of a local pension and health care cost control measure suggests that little near-term fiscal improvement is likely to result from external political pressure...The city's ratings continue to reflect its position as a large, world renowned city with a diverse economy and strong resident wealth levels. Its moderate debt burden, which is conservatively structured, is also incorporated into the ratings.