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U.S. Local Governments Credit Brief: California Counties And Municipalities Means And Medians

Overview

California counties and municipalities (or local governments [LGs]) have maintained or improved credit quality during the past year through a combination of conservative budgeting practices, better-than-expected local revenue performance, and the receipt of stimulus funds to aid recovery from the COVID-19 pandemic. However, macroeconomic conditions--including high inflation and the rising risk of recession--are headwinds for rated issuers, and S&P Global Ratings is focused on labor negotiations as employees face the prospect of negative wage growth in real terms absent larger-than-typical compensation increases. We expect growing tax bases and very strong budgetary flexibility stemming from recent positive operating results to partly mitigate these challenges.

S&P Global Ratings maintains ratings on 259 LGs within the state. Overall, LG credit quality remained stable, with 5% experiencing rating actions since October 2021. During this period, we took seven positive rating actions and revised six outlooks to positive on general obligation or general-fund-secured bonds with no negative rating actions. In addition, almost 99% of the ratings have a stable outlook. We have negative outlooks on our ratings for one county (Madera County) and two municipalities (Anaheim and Torrance), and a positive outlook on the ratings for one municipality (Vallejo). Although we revised the outlook to negative on 3% of our ratings on California LGs in 2021, we revised most of those outlooks to stable in 2022 based on the LGs' resilience through the pandemic and the credit pressures that we anticipated at the outset either not materializing or being mitigated by the receipt and use of stimulus funds.

What We're Watching In 2022 And Beyond

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One-time federal stimulus may offset overall expenditure growth this fiscal year, but it poses a challenge for future years

LGs continued to perform well last year through a combination of conservative budgeting practices, better-than-expected local revenue performance, and the receipt of stimulus funds to aid recovery from the COVID-19 pandemic. This is evident in improvements in the median available fund balances at almost every rating level. California LGs have received the second round of federal stimulus provided under the American Rescue Plan Act, and these funds will be deployed to backfill revenue losses or cover other eligible expenditures. For the year ahead, we believe that credit quality will remain stable because LGs have demonstrated a willingness and ability to constrain expenditures in the face of budgetary stress.

However, we expected personnel costs to be the primary source of budgetary pressure in fiscal years 2023 and 2024. They represent the majority of LG general fund budgets and LGs will face pressure to increase compensation beyond the typical 2%-3% annual raises that we have observed in the past. High inflation is eroding purchasing power, and employees face the prospect of negative wage growth in real terms absent more substantial compensation increases. These pressures may also be heightened given tight labor markets and the ability of employees to find comparable--but better compensated--positions with neighboring LGs. We believe that wage pressures will be particularly high for LGs that reduced expenditures during the past two years by negotiating with bargaining units to defer scheduled wage increases, or for those LGs that consummated short-term agreements with wage increases that were in line with previous low rates of inflation but that have subsequently lagged the high inflation of this period. We anticipate that LGs may use a combination of one-time payments in conjunction with moderate wage increases to smooth the budgetary effects.

AV growth remains strong in fiscal 2023 but may slow

Tax base growth has remained strong, and we expect this will continue into at least fiscal 2023 given the lag between property assessments and the collection of property tax revenue. Median single-family home prices in California increased by 21% for new housing and 19% for existing housing in calendar 2021, and are projected to rise by 14.3% and 19.1%, respectively, in calendar 2022, according to S&P Global Market Intelligence forecasts. The stored value inherent within the Proposition 13 system, which tends to be a substantial cushion for tax base growth even when real estate market conditions weaken, also tends to result in tax base growth even as property values stagnate or decline. However, we monitor for real estate market effects tied to less favorable borrowing terms and demographic shifts.

Spotlight On Environment, Social, Governance Factors

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The state is broadly exposed to a wide range of environmental risks. Acute physical risks stemming from wildfires and droughts, as well as chronic issues resulting from hydrological volatility and sea level rise; energy transition risk; other hazards such as seismic events and mudslides; and natural capital stress related to water scarcity are heightened risks for some entities absent adaptation measures.

Housing affordability has resulted in demographic shifts and elevated social risks. In addition, we expect the cost of municipal services to rise significantly given infrastructure investment required to meet demand and asset deficiencies such as grid reliability associated with ambitious energy transition requirements.

The state has a long history of policymaking aimed at preserving natural capital that mitigates or reduces climate risks and addresses socioeconomic inequities. While these policies advance environmental, social, and governance (ESG) principles, limitations on key revenue streams have hindered infrastructure investment, creating meaningful challenges to adaptation efforts. Furthermore, the state provides limited oversight for distressed municipalities as represented in our LG institutional framework.

For more information on California LG ESG factors, see "ESG U.S. Public Finance Report Card: California Governments And Not-For-Profit Enterprises," published June 16, 2021, on RatingsDirect.

Table 1

California Counties: Medians
Rating
AAA AA+ AA AA- A+ A
Projected per capita EBI (%) 127 116 79 70 62 66
Market value per capita ($) 208,482 215,845 135,939 111,650 77,458 86,535
Available general fund (%) 22 26 22 21 13 19
General fund performance (%) 3.8 13.5 3.7 5.0 0.6 (0.4)
Cash and expense (%) 81 85 55 70 44 35
Carrying charge (%) 2.1 1.5 2.4 3.2 1.9 1.2
Pension ARC + OPEB as % of expense 10.9 10.4 8.9 9.3 6.5 7.8
EBI--Effective buying income. ARC--Annual required contribution. OPEB--Other postemployment benefits.

Chart 1

image

Table 2

California Counties: Ratings List
As of Aug. 10, 2022
This list was prepared by individuals on behalf of the USPF Group of S&P Global Ratings and is current as of Aug. 10, 2022. For the most up to date, accurate, and complete information on any credit ratings referenced in this list, please visit www.standardandpoors.com.
Organization Rating Outlook Ratings linked to obligor creditworthiness rating Outlook
Alameda County AAA Stable AA+ Stable
Calaveras County AA Stable AA- Stable
Contra Costa County AAA Stable AA+ Stable
County of Santa Clara AAA Stable AA+ Stable
Fresno County AA- Stable
Imperial County A- Stable
Kern County A+ Stable
Kings County A Stable
Los Angeles County AAA Stable AA+ Stable
Madera County AA- Negative A+ Negative
Marin County AAA Stable AA+ Stable
Mendocino County AA- Stable A+ Stable
Merced County A+ Stable
Mono County AA- Stable
Monterey County AA+ Stable
Napa County AA+ Stable
Nevada County AA Stable
Orange County AA+ Stable AA Stable
Placer County AA+ Stable AA Stable
Riverside County AA Stable AA- Stable
Sacramento County AA- Stable A+ Stable
San Benito County AA Stable
San Bernardino County AA+ Stable AA Stable
San Diego County AAA Stable AA+ Stable
San Joaquin County A+ Stable
San Luis Obispo County AA+ Stable
San Mateo County AAA Stable AA+ Stable
Santa Barbara County AA+ Stable
Santa Cruz County AA+ Stable
Sierra County AA-* Stable
Solano County AA+ Stable
Sonoma County AAA* Stable
Stanislaus County AA Stable
Tehama County A- Stable
Tulare County AA-* Stable
Ventura County AAA Stable AA+ Stable
Yolo County A+ Stable
Yuba County AA- Stable A+ Stable
*Legally available funds pledge.

Table 3

California Municipalities: Medians
Rating
AAA AA+ AA AA- A+ A A- BBB+ or lower
Projected per capita EBI (%) 195 127 92 68 58 59 53 106
Market value per capita ($) 317,186 182,700 136,833 99,180 68,109 88,688 55,255 127,602
Available general fund (%) 51 38 50 46 39 23 18 64
General fund performance (%) 3.4 7.2 11.4 13.2 13.7 14.6 14.2 14.0
Cash and expense (%) 130 161 162 113 145 119 294 65
Carrying charge (%) 3.2 2.2 3.5 4.5 4.7 6.5 8.2 7.3
Pension ARC + OPEB as % of expense 10.1 15.7 13.2 11.7 9.0 18.2 7.5 15.6
EBI--Effective buying income. ARC--Annual required contribution. OPEB--Other postemployment benefits.

Chart 2

image

Table 4

California Municipalities: Ratings List
As of Aug. 10, 2022
This list was prepared by individuals on behalf of the USPF Group of S&P Global Ratings and is current as of Aug. 10, 2022. For the most up to date, accurate, and complete information on any credit ratings referenced in this list, please visit www.standardandpoors.com.
Organization Rating Outlook Ratings linked to obligor creditworthiness rating Outlook
Agoura Hills AA+ Stable
Alameda AA+ Stable AA Stable
Albany AA+ Stable
Alhambra AA Stable AA- Stable
Anaheim A- Negative
Antioch AA- Stable
Arcadia AAA Stable AAA* Stable
Atascadero AA- Stable
Auburn AA+* Stable
Azusa AA-* Stable
Baldwin Park AA-* Stable
Barstow A+* Stable
Bell BBB+ Stable
Bell Gardens A+ Stable
Bellflower AA-* Stable
Benicia AA Stable AA- Stable
Berkeley AA+ Stable AA Stable
Beverly Hills AAA Stable AA+ Stable
Brawley A-* Stable
Brea AA Stable
Brentwood AA+ Stable AA Stable
Brisbane AA- Stable
Buena Park AA Stable
Burbank AAA Stable
Burlingame AAA Stable AA+ Stable
Calabasas AA+ Stable
Camarillo AAA Stable AA+ Stable
Campbell AAA Stable AA+ Stable
Carlsbad AAA Stable AA+ Stable
Carmel By The Sea AA+ Stable
Carson AA-* Stable
Cathedral City A+ Stable
Cerritos AAA Stable AA+ Stable
Chowchilla A Stable
Chula Vista AA- Stable
City of Covina AA* Stable
Claremont AAA Stable
Clovis AA- Stable
Coachella A+ Stable
Colma Town AA Stable
Colton A Stable A- Stable
Commerce A+ Stable
Concord AA Stable
Corona AA Stable
Corte Madera Town AA+ Stable
Costa Mesa AA+ Stable
Cupertino AA+ Stable
Delano A+ Stable
Desert Hot Springs A+ Stable
Diamond Bar AA+ Stable
Dinuba A- Stable
Downey AA- Stable
Dublin AAA Stable AA+ Stable
El Cajon AA* Stable
El Centro A+ Stable A Stable
El Cerrito BBB- Stable
El Monte A Stable
El Paso De Robles AAA Stable
El Segundo AA+* Stable
Elk Grove AA Stable
Encinitas AAA Stable AA+ Stable
Escondido AA- Stable A+ Stable
Fairfax Town AA+ Stable
Fairfield AA* Stable
Fontana AA Stable AA- Stable
Fort Bragg A+ Stable
Foster City AA+ Stable
Fountain Valley AAA Stable AA+ Stable
Fremont AA+ Stable AA Stable
Fresno A+ Stable A Stable
Fullerton AA- Stable
Garden Grove AA Stable
Gardena A+ Stable
Gilroy AA+ Stable AA Stable
Glendale AA+ Stable AA Stable
Glendora AAA* Stable
Grass Valley AA* Stable
Grover Beach AA Stable
Hawthorne A+ Stable
Hayward AA Stable
Hermosa Beach AA+ Stable
Hesperia A Stable
Huntington Beach AA Stable
Indian Wells AA Stable AA- Stable
Indio AA- Stable A+ Stable
Inglewood AA- Stable A+ Stable
Jurupa Valley AA- Stable
Kingsburg A+ Stable
La Habra AA+ Stable AA Stable
La Mirada AA+ Stable AA Stable
La Puente A+ Stable
La Verne AA+* Stable
Laguna Hills AA+ Stable
Lake Elsinore A+ Stable
Lake Forest AAA Stable AA+ Stable
Lakeport AA- Stable
Lancaster A Stable
Larkspur AAA Stable AA+ Stable
Lincoln AA- Stable
Livermore AA Stable
Lodi A+ Stable
Long Beach AA Stable AA- Stable
Los Alamitos AAA Stable AA+ Stable
Los Altos AA+ Stable
Los Angeles AA Stable AA- Stable
Los Gatos AA+ Stable
Lynwood A- Stable
Madera A Stable
Malibu AAA Stable AA+ Stable
Mammoth Lakes A+* Stable
Manhattan Beach City AAA Stable AA+ Stable
Marina AA Stable AA- Stable
Martinez AA+ Stable
Marysville A+* Stable
Maywood A+* Stable
Mill Valley AAA Stable AA+ Stable
Millbrae AA+ Stable
Milpitas AAA Stable AA+ Stable
Mission Viejo AAA Stable AA+ Stable
Monrovia AA+ Stable AA Stable
Montclair A+ Stable
Montebello A+ Stable A Stable
Monterey Park AA* Stable
Moraga AA+ Stable
Moreno Valley AA- Stable
Morgan Hill AA Stable
Mountain View AAA Stable
Murrieta AA- Stable
National City AA- Stable AA-* Stable
Newark AA Stable
Newport Beach AAA Stable AA+ Stable
Norwalk A+ Stable
Oakland AA Stable AA- Stable
Oakley AA Stable
Oceanside AA+ Stable AA Stable
Ontario AA- Stable
Orange AA- Stable
Orinda AAA Stable AA+ Stable
Oroville AA-* Stable
Oxnard A Stable A- Stable
Pacifica AA Stable
Palm Springs AA+ Stable AA Stable
Palmdale AA- Stable A+ Stable
Palo Alto AAA Stable AA+ Stable
Paramount AA-* Stable
Pasadena AAA Stable AA+ Stable
Petaluma AA Stable
Pico Rivera AA- Stable
Piedmont AAA Stable
Pismo Beach AA+ Stable
Pittsburg AA- Stable AA-* Stable
Placentia AA- Stable A+ Stable
Pomona A+ Stable
Porterville AA- Stable
Poway AA+ Stable
Rancho Cordova AA- Stable
Rancho Cucamonga AA+ Stable AA Stable
Rancho Santa Margarita AAA Stable AA+ Stable
Red Bluff A+* Stable
Redding A+ Stable
Redlands AA-* Stable
Redondo Beach AA+ Stable AA Stable
Redwood City AA+ Stable
Richmond AA- Stable A+ Stable
Ridgecrest A Stable
Riverside AA Stable AA- Stable
Rocklin AA+ Stable AA- Stable
Roseville AA+ Stable AA Stable
Sacramento AA Stable AA- Stable
Salinas AA- Stable A+ Stable
San Anselmo Town AAA Stable AAA* Stable
San Bruno AA+ Stable
San Buenaventura AA Stable
San Carlos AAA Stable
San Diego AA Stable AA- Stable
San Fernando A+* Stable
San Francisco City and County AAA Stable AA+ Stable
San Jose AA+ Stable AA Stable
San Juan Capistrano AAA Stable
San Leandro AA- Stable
San Luis Obispo AA+ Stable AA Stable
San Mateo AAA Stable AA+ Stable
San Pablo AA- Stable
San Rafael AA Stable
San Ramon AAA Stable AA+ Stable
Sanger A Stable
Santa Ana AA Stable AA* Stable
Santa Clara AA+ Stable AA Stable
Santa Clarita AAA Stable AA+ Stable
Santa Cruz AA+ Stable AA Stable
Santa Monica AA+ Stable
Santa Rosa AA- Stable
Saratoga AAA Stable
Sausalito AAA Stable AA+ Stable
Scotts Valley AA- Stable
Seaside AA- Stable
Shasta Lake A+ Stable
Signal Hill AA Stable
Simi Valley AAA Stable AA+ Stable
South Gate A+* Stable
South Lake Tahoe AA Stable
South San Francisco AAA Stable AA+ Stable
Sunnyvale AAA Stable AA+ Stable
Thousand Oaks AA+ Stable
Torrance AA Negative
Tracy AA- Stable
Truckee AA+ Stable
Tulare A Stable
Ukiah A+ Stable
Union City AA+* Stable
Vallejo A- Positive
Victorville AA- Stable A-§ Stable
Visalia A+ Stable
Vista AA- Stable
West Covina A+ Stable
West Hollywood AAA Stable AA+ Stable
Whittier AA* Stable
Willows City A+* Stable
Yorba Linda AAA Stable AA+ Stable
Yountville AA Stable AA- Stable
Yuba City A+ Stable
*Legally available funds pledge. §Moral obligation pledge.

This report does not constitute a rating action.

Primary Credit Analyst:Tim Tung, CFA, San Francisco + 1 (415) 371 5041;
tim.tung@spglobal.com
Secondary Contacts:Chris Morgan, San Francisco + 1 (415) 371 5032;
chris.morgan@spglobal.com
Bianca Gaytan-Burrell, Centennial + 303-721-4617;
bianca.gaytan-burrell@spglobal.com
Research Contributor:Yogeshwar Suresh, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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