Fitch Ratings downgraded Oakland’s credit rating by two levels, citing the difficulty of filling budget deficits during a shift in political leadership.
Last Thursday, the city of roughly 440,000 people had its issuer default rating downgraded from AA- to A. Simultaneously, its outlook was changed from steady to negative, suggesting that cuts may be forthcoming. According to the ratings agency, the city’s preliminary expected loss for the current fiscal year is $93 million, whereas its estimated deficit for the fiscal year that concluded in June was $79 million.
About two years after taking office, Oakland’s mayor lost a recall vote this month. According to Fitch, the outcome was influenced by calls to increase public safety. According to Fitch, public safety now accounts for over half of the city’s primary budget, with staff and overtime expenses on the rise.
Due to the city’s shifting elected leadership, Fitch anticipates that the large spending cuts will be challenging to execute in the near future and take time, the company stated in a release dated November 27.
About a month before to Oakland’s reduction, Moody’s Ratings had stripped San Francisco of its highest credit rating, citing a weakened economy and a decline in commercial real estate in the tech sector following the exodus of workers due to the epidemic.
The sale of the city’s portion of the Oakland-Alameda County Coliseum, which it was depending on to prevent budget cuts, is one financial issue Oakland has faced. Fitch claims that a contingency budget was necessary because the sale was not completed at the time the fiscal 2025 budget was adopted.
According to Fitch, payment delays have led to the implementation of the contingency budget, which has frozen jobs in every department, reduced spending, and stopped new grant and contract agreements.
However, the ratings agency said that certain parts of the contingency plan faced political obstacles because they included cuts to the fire and police services. According to Fitch, the city will make more cuts this month to close the gap.
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