ALAMEDA, Calif. — Citing flaws in a recently adopted California law designed to restrict the state’s redevelopment agencies, Moody’s Investors Service Wednesday placed all of its rated California tax allocation bonds on review for possible downgrade.
The action affects $11.6 billion in outstanding debt.
Lawmakers this year enacted bills designed to require the state’s approximately 400 active redevelopment agencies to either make about $2 billion in payments to balance the state budget or be eliminated.
Moody’s said the downgrade review stems from the law that would eliminate agencies, because it eliminates tracking of revenues that would secure their bonds and changes the flow of funds used to pay debt service.
“If left unchanged, this law would be significantly negative for bondholder credit,” Moody’s said in its news release.
“This legislation could result in multi-notch downgrades on bonds of the dissolved redevelopment agencies,” according to Moody’s.
The agency said the required payments to the state government represent a “more modest” negative credit impact.
It is unclear of lawmakers will pass a clean-up bill before adjourning Sept. 9 or if such a bill would do any good, according to Moody’s.
Adding to the uncertainty, according to Moody’s, is the legal uncertainty surrounding redevelopment in California.
Redevelopment interests have challenged the new laws, and their case is before the state Supreme Court.
The downgrade review could extend beyond Moody’s typical 90-day period, because final Supreme Court action is not expected until 2012.
