Bloomberg News

California ‘Uncertainty’ Imperils Allocation Bonds, Moody’s Says

September 01, 2011

Sept. 1 (Bloomberg) -- About $11.6 billion in California tax-allocation bonds are at risk of a downgrade, Moody’s Investors Service said, due to “substantial uncertainty” over the future of redevelopment agencies in the most-populous state.

Two new laws that divert money from California’s 400 redevelopment agencies and eliminate tracking of revenue used to repay their bonds may diminish the credit quality of the debt, Moody’s said yesterday. Governor Jerry Brown signed the laws as part of a deal to balance California’s $86 billion budget for 2011-12 in June.

On Aug. 11, the California Supreme Court blocked the Brown administration from diverting $1.7 billion from the agencies, which provide tax incentives for development projects in areas that are deemed blighted. Moody’s said the ongoing court challenge is a “key contributor” to its decision to review the tax-allocation bonds.

“The fact that a state supreme court ruling could invalidate one, both, or neither of these bills, in whole or in part, creates uncertainty that is negative for the credit quality of all California tax allocation bonds,” Moody’s said.

Moody’s noted that the state’s top court isn’t scheduled to rule until Jan. 15 on whether the Brown administration was within its rights to redirect the redevelopment funds to public schools. The firm said it may take longer than the normal 90 days to decide on any ratings changes.

--Editors: Pete Young, Ted Bunker

To contact the reporter on this story: James Nash in Sacramento at Jnash24@bloomberg.net;

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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