Moody's May Downgrade California Tax Bonds

Wednesday, 31 Aug 2011 07:15 PM

 

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Moody’s Investors Service placed $11.6 billion in California tax allocation bonds on review for possible downgrade, citing “substantial uncertainty” over the future of redevelopment agencies in the most-populous state.

Two new laws that divert money from California’s 400 redevelopment agencies and eliminate tracking of revenue used to repay their bonds may diminish the credit quality of the debt, Moody’s said today. Governor Jerry Brown signed the laws as part of a deal to balance California’s $86 billion budget for 2011-12 in June.

On Aug. 11, the California Supreme Court blocked the Brown administration from diverting $1.7 billion from the agencies, which provide tax incentives for development projects in areas that are deemed blighted. Moody’s said the ongoing court challenge is a “key contributor” to its decision to review the tax allocation bonds.

“The fact that a state supreme court ruling could invalidate one, both, or neither of these bills, in whole or in part, creates uncertainty that is negative for the credit quality of all California tax allocation bonds,” Moody’s said.

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