ALAMEDA, Calif. — Many California redevelopment agencies are facing major credit challenges that have nothing to do with the governor’s plan to eliminate them, Fitch Ratings said in a special report released Monday.
The state’s RDAs function by having local governments declare redevelopment areas that capture the increased property-tax revenue generated by rising property values within those areas. That tax increment typically is used to back bonds.
The problem, according to Fitch, is that property values in many redevelopment areas are going the wrong way.
“A continued challenging tax base environment likely will result in further negative actions within the sector,” Fitch said in its report. “Although many project areas already have experienced acute tax-base contractions, Fitch believes the removal of temporary housing market supports combined with other factors may result in an accelerated assessed valuation (AV) decline beginning in fiscal 2013 in some areas.”
The future of redevelopment remains in the balance this week in Sacramento, with Gov. Jerry Brown pushing for legislation that would eliminate the agencies, while maintaining the obligation to service their outstanding debts.
If that comes to pass, it could pressure a limited number of lower-rated tax allocation bonds, according to Fitch. “However, the implications for some TABs are positive over the long term, given the potential limitation on further leveraging,” the report said.
The report said RDAs facing credit stress tend to be those where new construction was prevalent during the housing boom, such as the San Joaquin and Sacramento valleys, Riverside County, San Bernardino County, and more generally in distant suburban and exurban areas.