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Moody's Downgrades California Redevelopment Bonds Because of "Impending Dissolution" of Redevelopment

January 17, 2012

Bond rating agency Moody's Investor Service yesterday downgraded by one notch all California tax allocation bonds (redevelopment bonds) rated Baa2 and above. It also announced that all California tax allocation bonds would remain on review for a possible downgrade.


Moody's cited near term cash flow risks jeopardizing debt service payments as the reason for the downgrade. Concern over timely bond payments is just one of the many unforeseen consequences resulting from implementation of AB 1x 26, the bill requiring a Feb. 1, 2012 deadline to dissolve redevelopment agencies. Because of this and other implementation problems, members of Coalition for Jobs and Neighborhood Renewal are supporting SB 659 (Padilla) which postpones the Feb. 1 deadline to April 15, giving the legislature time to address these implementation issues.

From Moody's review:

"Compliance with the requirements of the new legislative framework may prove challenging, particularly in the near term as affected agencies attempt to interpret the law and comply with its specified timelines. Most significantly, in the new law County Auditor-Controllers are given new auditing requirements to be met by July 1, 2012, and on-going administrative responsibilities that may initially conflict with existing bond indentures. The resolution of any such conflicts according to the new law's property tax reallocation process could take a substantial amount of time, and it is entirely untested. The limited, one-notch downgrade across the Baa2-and-above rating spectrum reflects the broad-based but modest nature of this new risk.


  • The law establishes an initial allocation of property tax revenues that conflicts with existing bond documents and the effectiveness of the resolution process on a timely basis is uncertain.
  • The timeframe for property tax disbursements is more restricted than it had been previously, potentially resulting in mismatched receipt and disbursement schedules over the course of a year.
  • The new law's audit requirements and sheer complexity may result in unexpected payment delays as legal and administrative clarification is pursued.

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