Standard & Poor’s Tuesday dropped its ratings for Bell to junk status, the latest blow to the working-class California community since reports emerged last month that it was paying its city manager almost $800,000.
The ensuing uproar led to the resignation of the manager, Robert Rizzo, and three high-ranking members of the city administration with higher-than-normal salaries.
It also put the dealings of the city of 39,000 residents in Los Angeles County under the microscope, triggering investigations by the local district attorney and state attorney general, as well as a continuing stream of revelations by the Los Angeles Times, which broke the original story.
Standard & Poor’s Tuesday downgraded Bell’s general obligation bonds and pension obligation bonds to BB from A-minus, and dropped the city’s 2005 lease revenue bonds to BB-minus from BBB-plus. It also placed the rating on negative CreditWatch.
The latest concern is a $35 million lease-revenue bond Bell issued in 2007. The city borrowed the money to buy a land parcel it expected to redevelop for industrial uses, but the plan failed, the Times reported.
The bond has a bullet maturity in November, according to its most recent comprehensive annual financial report, for the period ending June 30, 2009. According to the CAFR, the original bullet maturity was in 2008, and was extended one year at Bell’s request.
“We base the downgrades and CreditWatch placements on our assessment of Bell’s ability and willingness to either refinance or pay an imminent Nov. 1, 2010, bullet maturity for the city’s $35 million Series 2007 taxable lease-revenue bond issuance,” said Standard & Poor’s analyst Michael Taylor. “We believe that the recent resignation of the city manager and finance director, and reports that the asset purchased with the unrated Series 2007 lease-secured debt has decreased in value, have created uncertainty as to the city’s future actions.”
In related news, state Treasurer Bill Lockyer Wednesday announced a proposal to have the California Public Employees’ Retirement System produce an annual report comparing salaries across state and local agencies, and identifying those that made the top 100 compensation payments.
CalPERS staff were aware of Bell’s salary levels in 2006 but said or did nothing.
Lockyer sits on the system’s board.
“CalPERS has an opportunity to tighten its compensation reporting policy and regulations, and I intend to make sure we don’t pass up the opportunity,” he said.