Last week bond rating agency Moody's took California's redevelopment bonds down a notch, and today fellow rating agency Fitch is expressing similiar concerns.
Citing concerns over the "short timeframe" that last month's Supreme Court decision dictated for the dissolution of the state's roughly 400 active redevelopment agencies, Fitch has placed all bonds secured by tax increment financing on Rating Watch Negative. Fitch is also concerned by the lack of progress in shoring up what redevelopment's supporters consider flaws and shortcomings in AB X1 26, the legislation that mandates and guides the process for agencies' dissolution. February 1 is the date on which agencies are supposed to be turned over to successor agencies.
According to a statement [.pdf] released by Fitch, "While the intent to uphold existing obligations is clearly stated in the legislation, the mechanics of implementation are not."
To determine whether or not outstanding bonds will be repaid, Fitch intends to review the process of handing off RDA assets and obligations to successor agencies and will review each agency's and oversight committee's ability to mange those assets and obligations.
Fitch's review will include the following:
- Once available, Fitch will review the guidelines and discuss with the appropriate county auditor-controllers their plans to adhere to guidelines that are being drafted by the California Association of Counties (CSAC).
- Fitch will assess whether each county auditor-controller, successor agency, and board is planning to track tax increment revenue generated by project area and for housing and non-housing purposes, pursuant to the pledges to bondholders, and whether each of these entities is prepared to apply procedures in a way that assures the flow of tax increment revenue pledged to secure each series of bonds.
- Fitch will evaluate whether the guidelines or subsequent legislation, if any, address the concern that the payment schedule is funded on a six month basis, rather than annually, which could result in funds being transferred to overlapping taxing entities prior to funding a full year of debt service.
- Fitch will confirm that Fitch-rated bonds are included on the schedule of payments permitted to be paid by the agency.
- Fitch will evaluate the ability of a 'designated local authority' to staff and oversee a successor agency should no existing local entity elect to become the successor agency.
- While Fitch believes these uncertainties will be resolved for all or most affected entities, if any of these plans or procedures are inadequate to ensure timely payment of debt service, Fitch will take appropriate rating action on those individual credits.