The city of Bell, California, received an investment grade rating from S&P Global Ratings ahead of a $24.6 million refunding that represents the city's return to the public debt market after a corruption scandal erupted eight years ago.
S&P had not rated the city since September 2010.
The agency withdrew the ratings shortly after it came to light that seven city officials had stolen millions of dollars, nearly bankrupting the small, working class city in Los Angeles County. The rating was withdrawn in 2010 because the city had not been providing timely financial information on which to base ratings, according to S&P.
S&P had lowered the city’s A-minus ratings to BB after the scandal, before withdrawing the ratings, said Benjamin Geare, an S&P analyst.
“The new rating was provided at the city’s request,” Geare said. “Broadly speaking, we felt the community had done the work to rehabilitate its finances and restore the internal control environment.”
S&P Global Ratings assigned a BBB-plus rating to the $9.3 million series 2018A and $15.3 million 2018B general obligation refunding bonds. The proceeds will refund all of the city's outstanding series 2004 GO bonds and the city's series 2007 bonds.
The city became infamous following news reports in 2010 that city manager Robert Rizzo was collecting a $1.18 million salary including benefits, that assistant manager Angela Spaccia was receiving $564,000, and all but one of the part-time city council members in the working-class city of 35,000 had rigged the system to receive $100,000 a year.
Rizzo and Spaccia were separately sentenced to 12 years in federal prison in 2014. He was required to pay $8.8 million in restitution.
Residents forced a recall election ousting the entire city council and replacing them with a new slate on March 8, 2011.
The city has resolved investigations launched by the Securities and Exchange Commission and the IRS and adequately addressed the 34 changes to internal financial controls recommended in 2010 by then Controller John Chiang, according to the S&P report.
Bell didn’t ask S&P to rate the city’s outstanding debt. The city has $19.5 million in outstanding lease revenue and pension obligation bonds, aside from the $24.6 million in GOs being refinanced the week of May 21, according to financial statements for the year ended June 30, 2017. There are also $16.8 million in outstanding tax allocation revenue bonds, but they are not technically an obligation of the city, because they are redevelopment successor agency bonds.
Though S&P expects the city will maintain transparency, the constant turnover of management adversely affects its credit quality, Geare said.
“We have an expectation that staff retention will improve going forward and that the problem will lessen with time,” Geare said.
Though Bell has $20 million in authorized but unissued debt on its books, it does not plan to issue any new money debt in the next 12 to 24 months, analysts wrote.
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Corrected May 8, 2018 at 4:06PM: The amount of outstanding debt was incorrect in the original version of this story. The story has been updated with the correct amount.