S&P lowers rating on City, County of SF Ser 2 & 2-T CP

S&P Global Ratings has downgraded the long-term credit rating of the City and County of San Francisco’s general obligation (GO) debt to ‘AA+’ from ‘AAA’ and reduced its appropriation obligations rating to ‘AA’ from ‘AA+’, citing ongoing fiscal challenges. The agency also affirmed an ‘A-1-plus’ short-term rating on the city’s series 2&2-T and 3&3-T lease revenue commercial paper (CP) certificates, indicating no change in its assessment. The downgrade reflects S&P’s concerns about a widening two-year budget gap of $875.9 million. Analysts highlighted that reduced commercial activity, including closures of major businesses, has exacerbated fiscal pressures, while rising salaries and departmental expenses outpace revenue projections according to analysis. The city plans to issue over $500 million in GO bonds in 2025, including $67.43 million in social bonds for affordable housing and $193.81 million for earthquake safety projects as part of its financing strategy. While S&P affirmed the ‘A-1-plus’ rating on its existing variable-rate lease revenue obligations, it emphasized that the city’s financial decision-making faces heightened complexity due to economic uncertainties. Moody’s and Fitch have also issued negative or mixed outlooks, with Fitch recently upgrading the city’s rating to ‘AAA’ under revised criteria but maintaining a stable outlook. The downgrade may increase borrowing costs for San Francisco as investors demand higher yields to compensate for perceived risks.