Credit rating agency Moody's Investors Service downgraded by one notch all California tax allocation bonds rated Baa2 and above. Moody's is monitoring all other redevelopment bonds and may issue a downgrade in the future.
Moody's cites near-term cash flow risks surrounding the disollution of redevelopment, per Assembly Bill X1 26 and the subsequent Supreme Court decision upholding it, as the reason for the downgrade. AB X1 26 calls for successor agencies to assume RDAs' outstanding debt and to disburse funds that they receive from the state to RDAs' creditors. However, the stipulations of AB X1 26 have been criticized as being out of touch with typical bond repayment schedules. In issuing the downgrade, Moody's noted that "the implementation and potential for varying interpretations of the new legislation incrementally raises the risk that some debt service payments will not be made on a timely basis."
Though the downgrade is slight and may not have direct impacts on redevelopment projects or successor agencies, supporters of redevelopment say that the downgrade underscores their concerns over AB X1 26. The downgrade should, they say, give the governor and Legislature pause.
"It's sort of a shot across the bow," said Jim Kennedy, interim executive director of the California Redevelopment Association. The CRA has been lobbying for legislation that would extend the deadline for dissollution to April 15.
"It's more important in terms of not the fairly modest downgrade...(but) in saying that there's a tremendous amount of ambiguoutiy and uncertainty in the law that needs to be corrected," said Kennedy. "If that doesn't happen, we may be seeing more than just a one notch downgrade."
Representatives of the governor's office did not respond to request for comment.
Click here for Moody's full rating update (.pdf).
[Updated 23 January 2012]