SAN FRANCISCO - Fitch Ratings has downgraded more than $1.8 billion of San Jose Redevelopment Agency bonds as the city battles Santa Clara County over tax revenue.

The rating agency cut $1.6 billion of tax allocation bonds to BB-minus from BB-plus and dropped $253 million in tax allocation bonds issued in 2003 and 2008, which have a cash reserve, to BB from BBB-minus.

Fitch also put $247 million of housing tax allocation bonds, which are rated A, on watch for a potential downgrade.

The redevelopment agency was shut down this year as part of the statewide elimination of redevelopment.

Fitch said the downgrades are a result of San Jose's admission it does not have enough money to make the Aug. 1 interest payments on the bonds because the county has withheld expected tax increment revenue in a dispute over money the county believes it is owed by the city and its former redevelopment agency.

The county has withheld $20 million from its June 1 payment to the RDA, according to Fitch. All of the bonds are on watch by Fitch for possible downgrade.

Fitch said San Jose has asked the State Controller to review the county's actions. Under the new law, the State Controller or Department of Finance can ask the county reconsider its action. The city may sue the county if the state doesn't intervene, Fitch said.

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