LOS ANGELES — A new law designed to smooth the process of dissolving California's redevelopment agencies will have a minimal effect on most of their successor agencies' credit quality, Standard & Poor's said in a report.
Senate Bill 107 will make it more likely the agencies will stay in compliance with debt indenture provisions, S&P analysts said Sept. 29.
Gov. Jerry Brown signed the legislation on Sept. 22. It expands the definition of what is considered a loan between cities and counties and their former redevelopment agencies. It also makes it possible for successor agencies to use a percentage of the proceeds of bonds issued between January 2011, when the dissolution bill was introduced, and June 2011, when it passed.
The 104-page bill also allows successor agencies to request debt service annually, rather than semi-annually, according to S&P. The semi-annual requests to the state's Department of Finance, which oversees successor agency finances, resulted in problems in the early days of the wind down, because twice-yearly bond payments are split into principal and interest payments, so they are different amounts. The system resulted in cash flow problems for some successor agencies.
"The law as a whole will have minimal effect on most successor agencies' credit quality," S&P Analyst Sarah Sullivant said. "But certain successor agencies that are denied a 'finding of completion' by the California Department of Finance, or that lose unpledged override levy revenue unexpectedly, could find themselves in a cash crunch."
The successor agencies for which the DOF denies a "finding of completion," ascertaining that certain aspects of their finances are in compliance with the dissolution legislation, could face reductions after Dec. 31 in pledged tax increment revenue with little forewarning, leading to potential liquidity problems, S&P analysts wrote.
The law will also remove cumulative and time-capped redevelopment plan limits, which eliminates uncertainty regarding the allocation and management of redevelopment property tax trust fund money for those agencies that had been approaching, or have exceeded, a tax increment limit.
Sullivant and the three other S&P analysts who wrote the report determined that no rating actions were currently warranted. These developments were not viewed as material to the ratings, the analysts wrote. Neither the bill, nor the report, were reviewed by a rating committee, which is needed to determine a rating action.
S&P analysts said they will incorporate any cash flow interruptions into future analysis and continue to monitor cash flow and management practices to ensure compliance with bond documents.
