Correction -- Fitch Rates Los Angeles, California's $71.02MM GOs 'AA'.

SAN FRANCISCO -- (This is an amended version of a release issued on Friday, July 28th and contains an updated amount for the general obligation bonds.)

Fitch Ratings assigns an 'AA' rating to the City of Los Angeles, CA's $71,020,000 million general obligation bonds series 2006-A. In addition, Fitch affirms the 'AA' rating on $1.44 billion in outstanding parity debt. The new bonds will sell competitively on Aug. 9. The city's co-financial advisors are Kelling, Northcross & Nobriga and Public Resources Advisory Group. The Rating Outlook is Stable.

Fitch affirms the 'AA-' rating on $21.5 million in judgment obligation bonds and $38.9 million of Municipal Improvement Corporation of Los Angeles refunding certificates of participation (COP) (refunding program AY). The Rating Outlook for these issues also is Stable.

These ratings reflect the economic stability provided by the city's role as the center of the southern California region, sound financial operations and position, and a moderate though rising debt burden. To date, the city has utilized prudent spending controls to realize better-than-budgeted financial operations, resulting in sizable year-end reserves. The economy is performing well, marked by good taxable value gains, quick recovery from losses in economically sensitive taxes, and a declining, although high, unemployment rate.

However, Fitch expresses concern over the city's reliance on the prior year's reserves to balance the next year's operations, a practice the city is addressing and reduced in the fiscal 2007 budget. Financial performance historically has been better than budgeted, partially mitigates this concern. Also, the city's finances could be strained if litigation and possible federal changes regarding the utility users' tax (UUT) on phone usage is ultimately ruled or acted upon in a way that reduces collections. Lastly, Fitch notes the city's substantial growth in property value and commensurate decrease in housing affordability as a vulnerability.

Los Angeles' economic performance is above average in comparison with other California cities, as well as other major cities throughout the U.S. The countywide recessionary job loss was mild (2.1% from 2001-2003), with slow growth since then, 0.8%. The city's unemployment rate declined to 5.9% in 2005 and shows continued improvement in 2006. Nonetheless, the levels remain well above county, state, and national averages, typical of large urban cities.

Los Angeles' financial operations are strong, marked by sizable year-end reserves and prudent fiscal controls. The city expects good results for fiscal 2006, which, like fiscal 2005, saw strong tax performance and below-budget spending. This result reverses an operating deficit in fiscal 2004, the first loss since fiscal 1999, as good gains in taxes were not enough to offset the vehicle license fee reduction enacted by the state and spending growth.

The general fund consistently holds sound ending balance, rising to $809.6 million in fiscal 2005, with the unreserved amount of $490 million, and a strong 14.6% of spending. The city benefits from a diverse revenue base, with 69% of general fund revenue coming from taxes, primarily property, utility, sales, and business. Prior year's operations also benefited from strong management policies and practices. The city's prudent financial and debt policies were codified into mayor and council-approved actions, which Fitch views as enhancing the likelihood that the city will retain its solid financial position. Other evidence of sound management practices are the city's pension system's high funding ratios, early funding of post-employment benefits on a partially actuarial basis, and above-average debt amortization rate.

Future financial operations could be threatened by litigation initially ruled against the city regarding its application of the UUT on cellular phone use. In a related development, statements made at the federal level suggest an interest in eliminating some or all of the federal excise tax on phone use. Since the city's UUT is structured based on the federal tax, any such change could reduce the city's tax revenue from this source. The city estimates its UUT revenue related to phone use at $270 million, including $160 million from cellular service. These amounts represent 6.8% and 3.5% of general fund revenue. The city is appealing the litigation and closely watching the federal actions.

Los Angeles' debt issuance has increased lately, the result of successful general obligation bond elections. Despite the sales and sizable issuances by the Los Angeles Unified School District, the overall debt burden is moderate at $2,775 per capita and 3.8% of taxable value. While future issuance activity by both entities is expected to be significant, the debt burden should remain affordable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.