Bloomberg News

San Jose’s Credit Rating Cut by Moody’s on Decline in Reserves

March 27, 2012

San Jose (8719MF:US), California, the 10th most populous city in the U.S., had its general-obligation and lease- revenue bond ratings lowered on $1.1 billion in debt because of dwindling general-fund reserves.

Moody’s Investors Service cut the general-obligation grade one step to Aa1 from Aaa and reduced lease-revenue to Aa3 from Aa2, the New York-based rating company said yesterday in a statement. The outlook for the ratings is stable.

“The rating reflects the multi-year erosion of the city’s general-fund reserves,” Moody’s said in the statement. “The city’s management is also being significantly challenged to manage retirement costs and faces arduous barriers to reduce the impact of those obligations.”

San Jose, California (STOCA1:US)’s biggest city after Los Angeles and San Diego, spent $245 million on retirement benefits this year, an increase from $73 million a decade ago, Mayor Chuck Reed said in a March 5 statement. Retirement benefits cost the city more than 50 percent of base payroll and consume more than 20 percent of the city’s general fund, he said.

“The rating and outlook incorporate our expectation that the city’s fiscal position will remain stable albeit at a lower level than in recent years,” Moody’s said.

The rating may deteriorate further if the city can’t manage its retirement costs and if the city’s fiscal position continues to decline, Moody’s said.

The self-described capital of Silicon Valley is home to giants including eBay Inc. (EBAY:US) and Cisco Systems Inc. (CSCO:US)

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net

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


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