Six high-grade bonds issued by the city of Santa Monica are under review for a rating downgrades by one of the nation's leading credit rating agencies.
Moody's Investors Service, which rates 95 California cities, plans to scrutinize various bonds in 32 cities as part of a review that began in mid-August. In all, 27 cities' lease-backed obligations paid from the cities' general funds will be reviewed for downgrade.
In Santa Moncia, Moody's is looking at more than $117 million in bonds issued in the past decade to fund construction of the main library, the public safety station and three parking structures in downtown. They are all currently graded AAA and Aa1, meaning they're high quality and subject to very little credit risk.
Economic weakening, stagnant revenues and increasing costs, and a decline in a city's general fund balance can all drive downgrades.
The city's Finance Director Gigi Decavalles-Hughes said she isn't too worried, citing a healthy tourism industry and growing property and sales tax revenues.
"I feel confident that we have the elements that would keep our ratings the way they are," she said.
Gigi Decavalles-Hughes speculated Santa Monica was targeted because its lease revenue bonds are rated higher than most other cities' when compared to its general obligation bond, currently rated AAA.
"There are standards within the industry, not necessarily written in stone, if your general obligation bonds—the ones voters to approve—received AAA [rating], then lease-backed revenues would normally be two notches below," she said.
According to Moody's, high-profile bankruptcy filings in cities like San Bernardino show that cities' willingness to continue to cut costs may be eroding. Because bond payments also come out of a city's general fund, the payments must compete with other priorities, the company said.
In Santa Monica, city leaders are trying to shift more pension and health care costs to public employees whose benefits are paid out of the general fund.
"We are taking many actions to lower our costs and it’s helping," said Decavalles-Hughes.
— Patch editor Nicole Mooradian contributed to this report.