CITY HALL — While the recession has led to the downgrading of bond ratings for agencies across the state, two local redevelopment project zones in Santa Monica are enjoying a rare pat on the back.
Fitch Ratings recently upgraded the bond status for the Ocean Park Redevelopment Agency, which in the past was involved in the Sea Colony and The Shores projects, from a BBB+ to an A-.
The agency also reaffirmed the A+ rating for the Earthquake Recovery Redevelopment area bonds, which the City Council just last month voted to appropriate for housing, park expansion and Civic Center improvement projects.
City officials said the positive ratings means lower interest rates when it comes time to borrow money for projects in the future.
“Particularly in this environment and particularly given what is happening with the state bond rating, I think investors are more cautious with California’s debt so having a stronger rating means there’s likely going to be a stronger preference for Santa Monica bonds as opposed to an agency that is rated lower,” Carol Swindell, the finance director for City Hall, said.
The ratings promotion is expected to offset the impact from the recent demotion of the state’s general obligation debt to BBB, which is about two levels above what is known as “junk status,” which is when agencies believe the risk of default is higher.
“Ultimately the state’s rating will affect Santa Monica,” City Manager Lamont Ewell said.
Fitch is one of three groups that rate existing bonds in Santa Monica, the other two being Moody’s and Standard & Poor’s. Moody’s ratings for the earthquake and Ocean Park zones are an A3 and BAA1, respectively, which is comparable to an A- and BBB+ on Fitch’s scale. Standard & Poor’s gives an A rating for both zones.
Andy Agle, the director of Housing and Economic Development, said that many agencies are seeing their bonds being downgraded because of the economic climate.
“In these times when so many bond ratings are dropping, I think it’s very positive news to see that our bonds are maintaining their rating and in fact having the ratings increased,” he said.
Karen Ribble, the spokeswoman for Fitch Ratings, said that the Ocean Park zone was upgraded because the property tax base is fairly stable. The last time the area was rated was in 2002.
The rating for the earthquake zone was maintained because it encompasses a large area and generates a significant amount of revenue compared to the debt service.
“Since the last review, they have matured and generated a lot more property tax revenue … since they were initially assigned their rating,” she said. “Given the economic and property value climate, it’s not that typical.”
Ewell said that the bond rating was upgraded for other reasons that include the council’s financial policy adopted with the budget, which articulates how City Hall will be prudent, and for a reserve level whose baseline is at 10 percent.
He adds that the bond rating was also a result of a strong track record where the agency used a “pay as you go” process.
“We keep a low debt ratio for a city of this size,” Ewell said.
The bond rating is expected to yield lower interest rates when it comes time to borrow for a variety of projects through the earthquake zone. The council decided last month how to spend roughly $283 million in redevelopment agency money, appropriating $57 million for joint-use projects at Santa Monica High School, $25 million for shared parking, $2.3 million for the expansion of Memorial Park, $27 million for land acquisition as part of the Downtown parking plan, $2 million for freeway capping, $43.6 million for affordable housing, and $4.4 million for traffic signalization.
“It pretty much means that instead of paying high interest rates and having that come out of the total amount of money we can borrow, we will pay lower interest rates and that will give us more debt capacity,” Ewell said.
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