City May Face Downgraded Credit Rating

The news today that Moody’s Investor Service is considering a downgrade to Martinez’s credit rating is not sending alarm bells through city hall.

The rating service released a list of cities today that it is reviewing for a possible downgrade, and Martinez is on that list. In question is the city’s 2003 Certificate of Participation bond, first issued in 1992 for $2.2 million to pay for the renovation of City Hall, which was damaged by the 1989 Loma Prieta earthquake.

"Many cities' assessed valuations for the property taxes that support their general obligation bonds have declined only modestly in recent years, but their general funds have come under significantly more pressure," said Moody's senior vice president Eric Hoffmann. "Since the adoption of Proposition 13 in the late 1970's, the cities' inability to access their local property tax bases for increased operating funds led to diversification into even more economically- sensitive revenue sources, such as sales, business and hotel taxes."

But even if Moody’s downgrades the city’s rating, it won’t have much of an effect on the city, said Assistant City Manager Alan Shear.

“Moody’s is looking at all of the cities in which they’ve issued a rating for bond indebtedness that have a general fund component to it,” Shear said Wednesday. “From what we’ve been told, it’s just in the review stage. We’re included because the 2003 bond has a small general fund component, which will be paid off next year.”

The bond, which was refinanced in 2003 to take advantage of a lower interest rate, is primary tied to the city’s Water Fund, but a portion is tied to the general fund. It’s that portion that Moody’s is concerned about, Shear said.

But that portion of the debt will be paid off next year, and the remainder of the bond is scheduled to be paid off in 2018, said Kathy Spinella, the city’s finance director.

“The rates are already set,” Shear said. So even if Moody’s downgrades the city’s rating, it won’t effect Measure H or other bonds already in place.

“The greatest impact would be if we were going to go out to issue other bonds,” he said. “We’re not looking to do that for a number of years.”