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Moody’s places Berkeley bonds under review

Moody’s headquarters in New York. Photo: Alvaro Campo Garcia/Creative Commons

Moody’s Investor Services, one of the two dominant bond ratings companies, announced on Tuesday that it was reviewing the ratings of 32 California cities, including Berkeley. Three issuances by Berkeley are under review by Moody’s: the $28 million 2003 certificates of participation, the $5.8 million 2010 animal shelter financing, and the $9.1 million 1999 lease revenue bonds.

Refinancings were recently agreed on both the 2003 and 1999 issuances, with new AA ratings from Standard & Poor’s. According to City Finance Director Robert Hicks, both of the refinancings will be completed before the Moody’s review. That is likely to mean that only the $5.8 million animal shelter financing, currently rated Aa3, will be subject to review.

According to David Jacobson, a spokesman for Moody’s, the overall economic and legislative climate in California triggered the reviews.

“The factors here don’t apply just to Berkeley,” he said. “Over the last few years, California municipalities have been through interesting developments. There have been three bankruptcies. Over 50 have declared fiscal emergencies. We reanalyzed all the 90 cities in California that we rate. We determined that there were about 30 where we decided to place the rating on review and decided to just make sure they were rated appropriately.”

Jacobson said that the reviews throughout the state are focused primarily on pension obligation bonds and lease back bonds, not general obligation bonds.

“The revenue [for pension obligation and lease back bonds] comes out of the city’s general fund,” he said. “They have to compete with everything else that comes out of the city general fund.”

Jacobson said rising pension obligations and healthcare costs were key concerns.

Berkeley’s current AA ratings place the city in an elite group of municipalities. Should the animal shelter bonds be downgraded, there are three steps of single A ratings, which still count as “upper medium grade and low credit risk”, according to Jacobson. Each rating step down, however, can result in a 25 to 30 basis points (0.01%) change in interest rate. On the refinanced 1999 and 2003 bonds the city will pay 3.1%.

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  • sam

    Wasn’t moody’s the organization that rated high risk mortgage securities “AAA” and helped cause the financial collapse? Too bad they won’t do for Berkeley what they did for their banker friends. I guess since Berkeley doesn’t pay them money to rate its bonds the way the banks do.

  • Biker 94703

    Would we really want them to do for Berkeley what they did for the sub-prime tranches?  As a younger adult who might like to live in Berkeley for another 30 years, I’d far prefer that the City fix its finances now rather than kicking the can down the road.

  • southberkeleyres

    As an unemployed homeowner who is over 50, I worry.  Even if I am lucky enough to get my home paid off with strict fiscal disicpline, I won’t be able to afford living here because of escalating property taxes.  Our so called city “leaders” are in denial about our dire fiscal straits.  Our infrastructure is crumbling, our services are deteriorating, but rather than ask city employees to kick in towards their generous retirement, we are asked to pay more and more for items like maintenance that  should be paid out of the general fund. 
    Please read the Oakland Tribune’s Editorial. “Berkeley in need of some Significant Leadership Change.”  We have more than half a BILLION in debt for underfunded employee retirement programs and a annual structural deficit of about $3 million!  the city is spending more and providing less service. 
    Why do you think Willard Pool got filled in with dirt.  The priority seems to be city employees and leaders taking care of the employees, not leaders and employees taking care of business and the residents!  Vote the bums out of office!  Do NOT approve new taxes or bond measures unless you want to give  city leaders the means to keep ignoring the significant fiscal problems.