The Los Angeles City Council was warned that if it didn't take some serious leadership positions on the ailing city budget, credit agencies would give L.A. a black eye. And that started to happen Wednesday, with Moody's Investors Service downgrading the city's credit rating from stable to negative.

The effect will be that L.A. will have to pay more interest to borrow money. Moody's stated that the city's plan to deal with its $212 million deficit by consolidating departments and eliminating city services is a small and iffy program and that “in our experience, such savings often prove elusive.” Moody's also criticized the city for failing to implement a proposed 1,000 layoffs — “unfortunately, one of the plan's few immediate, tangible cost saving elements.”

Last week city administrative officer Miguel Santana forwarded the warnings by Moody's and Fitch Ratings about the city's creditworthiness to the mayor and City Council in a memo obtained by the Weekly. Mayor Antonio Villaraigosa later met with representatives of Fitch.

But the council continues to resist layoffs and deep cuts that could include entire departments — at the cost of an estimated $350,000 a day in extra red ink. The mayor has ordered department heads to implement the layoffs, but so far it's clear if Villaraigosa has the authority to make such cuts.

The City Council directed quasi-independent departments that work outside the general fund — LAX's Los Angeles World Airports, the Port of Los Angeles and the Department of Water and Power — to take on workers targeted for layoffs, but so far only 86 openings could be found for such employees.

Moody's downgrading of L.A's fiscal reputation is yet another warning that the City Council better open its eyes to the reality that deep cuts are unavoidable, especially as the city faces another $485 million deficit come July.

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