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Municipal Bond Analysts Assert Redevelopment Dissolution Causing “Havoc” in California Municipal Bond Market

April 19, 2013
In a blunt assessment, the National Federation of Municipal Analysts (NFMA) has criticized ABx1 26 and AB 1484, the 2012 legislation dissolving redevelopment agencies, as causing havoc in California’s municipal bond market in the name of funding state budget shortfalls.
This criticism is contained in an amicus brief filed by NFMA in the Sacramento County Superior Court on April 8, in Syncora Guarantee, Inc v. State of California. The Syncora lawsuit involves several constitutional challenges to the redevelopment dissolution legislation over the treatment of bonds that were issued by former redevelopment agencies.
NFMA provides a stark assessment as to how the redevelopment dissolution (RDA) legislation  has affected confidence in the California municipal bond market:
  • “The RDA Legislation seeks to unwind not only redevelopment agencies, but the layers of protection granted bondholders, including a pledge of tax revenues, debt service coverage through excess revenues, exercisable remedies, and continuing disclosure.”
  • “If California and governments generally, are able to re-prioritize liens and sweep agency funds to fund statewide budgetary deficits, investors will no longer be able to trust contractual rights they had bargained for and analysts will have little confidence in the legal and economic framework that underlies the municipal market.”
  • “…certain project areas may revert to their prior blighted state and generate less tax revenue going forward which may result in debts service shortfalls, an outcome contrary to the stated intention of the RDA Legislation and the principles of tax increment financing relied on by investors at the time of their purchase of the RDA bonds.”
  • “The RDA Legislation has eroded investor confidence in the enforceability of bondholders’ rights which has harmed the municipal market.”
  • “If California and state governments generally are able to alter fundamental bondholder protections to subordinate debt service to the whims of budgetary needs and raid agency coffers to fund statewide budgetary deficits, the foundation of municipal finance may be materially damaged.”
NFMA concludes that the end result may be higher borrowing costs for municipalities and perhaps an inability to access municipal bond markets at all. NFMA’s brief and the Syncora lawsuit highlight the need for the Legislature to take action to correct the damage done by the RDA legislation to confidence in California’s municipal bond market.
NFMA’s brief can be viewed online. For more information on NFMA read the press release or visit their website.

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