LOS ANGELES — California cities and redevelopment agencies have spent the past month lamenting the uncertainty wrought by today’s dissolution of the state’s 400-plus redevelopment agencies, but based on trading, municipal bond investors don’t appear to share those concerns.
“The market has spiked,” said Chris Tota, director for institutional sales and trading in the Los Angeles office of De La Rosa & Co. “I think the impact of the dissolution was to cause scarcity, which increased interest in the bonds.”
Even the bonds of the Community Redevelopment Agency of Los Angeles, which will be orphaned because Los Angeles officials voted against becoming its successor agency, have not been affected.
There has not been much trading for CRA-LA’s $1.7 billion of outstanding bonds, but only because they are owned by large institutional owners that have been the biggest buyers of RDA bonds — and they are not selling, Tota said.
“I think if they were selling, they would command high prices,” he said.
The cities in which the agencies were located had the first choice of assuming the successor role. If officials chose not to, any taxing agency, including a water district, could become the successor, but no one came forward to claim CRA-LA, said spokesman David Bloom. Los Angeles opted out, saying it could not afford to take on the liability.
Officials in Merced, Los Banos, Santa Paula, Pismo Beach, Bishop, and Riverbank also decided not to assume the successor agency role for their RDAs, said H.D. Palmer, a spokesman for the California Department of Finance.
“It was clearly a possibility that cities would decide not to assume the role, which is why the legislation contained the mechanism” for three-person boards to take over day-to-day management of the agencies during the three-year wind-down process, Palmer said.
The office of Gov. Jerry Brown now has to appoint boards for each city that lacks a successor agency.
The legislation did not set a deadline and Palmer said he did not know how long it will take for the boards to be created.
Though local leaders have complained about lack of clarity in the legislation, investors have been reassured by information on the governor’s website explaining the wind-down process, Tota said.
“It helped to settle the nerves of the market,” Tota said, adding that the bonds, typically secured by tax-increment revenue, are also benefiting from the muni rally that has been going on for three months.
“The market has been cooperating,” Tota said. “The rally in the Treasury and municipal markets has stimulated the RDA curve. We are seeing tremendous institutional interest in RDA bonds.”
But Daniel Genter, chief executive of RNC Center Capital Management, took a contrarian view.
“I think there is a misconception that because there will not be any more bonds issued that it affirms the ability of the agencies to assess taxes,” Genter said. “The idea that the Supreme Court affirming the dissolution was a positive is a stretch.”
The bonds’ position is basically the same, and buyers must look at individual agencies and issues, Genter said. “The idea that scarcity made these bonds a better credit risk is not accurate,” he said. “The amount of revenue realized from these tax increments is not going to change.”
Some $20 billion of tax allocation bonds issued by California RDAs are outstanding.
