Skip to comments.CA: Rating service downgrades S.D. bonds
Posted on 02/16/2005 1:06:40 PM PST by NormsRevenge
A New York-based ratings service has downgraded $46 million in San Diego's general obligation bonds and $250 million in debt, a decision that may lead to higher borrowing costs for the financially challenged municipality.
The notice, issued after an extensive review by Fitch Ratings analyst Amy Doppelt in San Francisco, downgraded the city's general obligation bonds to "A" grade from "AA." The lease-backed debt of $250 million was dropped from "A-" to "AA-", a company spokesman said.
In issuing the opinion, used by world credit markets to evaluate investment prospects for clients, Fitch cited "continued delays in the release of the city's fiscal 2003 audited financial statements, as well as ongoing political struggles that appear to hinder progress toward resolving the city's sizable financial challenges."
The city faces a pension deficit estimated at $1.37 billion and has delayed audits for fiscal 2003 and 2004. The city's abilty to borrow from financial markets has been hampered following the disclosure last year that facts about the pension deficit were kept from potential city bond investors.
The SEC is continuing an investigation into city finances and possible securities fraud, and the U.S. attorney and FBI are investigating possible public corruption.
"The pension underfunding is very significant, simply because of the fact that the city must contribute a much larger share of its budget going forward to pension funding than it has in the past," said Doppelt in a telephone interview.
She called issues such as the "lack of disclosure" and the various investigations "softer" issues that were more difficult to translate into financial terms. However, Doppelt noted that the law firm Vinson and Elkins, which being paid $2.6 million to investigate the city's pension woes and represent it before the SEC, believes there was "no intentional action to mislead investors and certainly nothing criminal (involved)."
The city's "ongoing political struggles" include continued litigation over the write-in mayoral candidacy of councilmember Donna Frye, as well as the controversy raised by City Attorney Michael Aguirre. In a recent report, Aguirre publicly accused a majority of council members of breaking federal securities laws.
"The cost here is that it detracts from the city's ability to address the big problem of the pension funding going forward," Doppelt said. "At some point the city is going to need to go back to labor (to help cut city costs) and that's difficult to do when you have people going off in all kinds of directions, finger-pointing and blaming.
"It makes it harder to do things that are already hard to do like balance the budget and get concessions."
Fitch placed city bonds on "Rating Watch Negative" in September, citing concern over the city's uncertain financial status, made worse by the ongoing investigations and political discord.
The company also similarly downgraded bonds secured by the city's water and sewer departments.
While the bond ratings were a downgrade, Fitch also noted that the citiy's A-grade ratings continue to reflect the its s"strong economic performance and revenue sources" which continue to give San Diego a "strong ability to pay general obligation, enterprise debt, and lease obligations."
Other positive elements of the city's financial status cited by Fitch include "the nature of essential services provided by the city's water and sewer utilities, as well as the city's beneficial tax structure, including property, sales, hotel, franchise, and property transfer taxes" that should translate into rising revenues
In the statement, Fitch noted that it continues to await release of the city's audited financial reports for fiscal years 2003 and 2004, along with further evidence of significant structural reform.
On Monday, the city agreed to spend $250,000 to hire Kroll Inc., a firm specializing in forensic accounting and litigation, and senior adviser Lynn Turner, former accounting chief of the Securities and Exchange Commission, in an effort to facilitate the audits.
The New York-based company will work with the city's independent auditor, KPMG, to provide evidence, documents and information it requires to complete an audit the city was supposed to release in November 2003.
With contribution from Union-Tribune staff reports
On the Web:
Fitch Ratings: FitchRatings.com
It couldn't have anything to do with the nearly THIRTY BILLION in new debt Anold has advocated in less than two years.
Wrongo. When Arnold floated the bonds, he incurred a cash flow stream to service the debt. To make the books "balance," he screwed local government out of property tax revenue and left them short of revenue.
That's SAN DIEGO city, NOT California.
Talk to the Mayor of San Diego. How is THAT Arnold's fault?
(That would be Post #5 if you are confuesed.)
So San Diego was in a real good financial situation until Arnold came into office? (This is a real question, not a flame, as I don't know much about SD politics and would like to learn).
No, the pension problem is significant. Still, the city wasn't anticipating having its revenue stream whacked when Arnold copped property tax revenues as an "emergency" measure (it'll be a cold day in hell before they get those funds restored as "promised"). There isn't a city or county government in the state that isn't feeling the hit.
They said it was going to rain today. It didn't.
It's Arnold's fault!
Yawn. I have complemented, and even defended Arnold, when he did something right, I think on three occasions since he was elected. His appointment of Tom Campbell comes to mind.
Write me when you can cite a fact.
The city has happily engaged in underhanded "fund raising" with red light cameras "tuned" to improve revenue. Accident rates from rear end collisions have uniformly gone up at those intersections.
The very public mismanagement of funds by the council is likely dwarfed by what has been done behind closed doors.
I'll bet San Diego Transit (bus and trolley) are taxpayer subsidized too.
I was wondering why anyone would be downgrading South Dakota's bonds.
Ther are probably Federal, State, and Local subsidies. The big winners are developers of high-density housing, often "purchased" by eminent domain.
Absolutely. The developers own the council. They get pretty much anything they want on land acquisition and zoning. The construction industry in San Diego acts as if continuous employment is an entitlement. Every conceivable open space is targeted for development. A major chunk of downtown was taken by eminent domain to build the ballpark for that miserable bunch of baseball whiners.