SAN FRANCISCO — Moody’s Investors Service Friday downgraded $1.75 billion of San Jose Redevelopment Agency bonds to junk after the city of San Jose said a default was possible because of a conflict over tax revenue with Santa Clara County.

Moody’s cut $1.08 billion of the redevelopment agency’s non-housing tax-allocation bonds that have cash-funded reserves or reserves met with sureties from investment-grade providers to Ba2 from Baa2.

It also dropped the ratings on a $670 million of non-housing tax-allocation bonds with debt service reserves met with below investment-grade surety policies to Ba3 from Baa3.

Additionally, the rating agency downgraded bonds that are backed by low- and moderate-income tax-increment revenues to Baa2 from A3.

It said all ratings remain under review for further downgrades.

The downgrades are a result of San Jose’s statement that it does not have enough money to make an Aug. 1 interest payment on some tax-allocation bonds because the county withheld expected tax-increment revenue in a dispute over money the county believes it is owed by the city and its former redevelopment agency, which was abolished this year as part of California’s statewide elimination of RDAs.

Moody’s action follows similar downgrades by Fitch Ratings earlier this week.

Fitch said in a note Friday that it will keep all California tax-allocation bonds on watch for a possible downgrade.

Major areas of concern include cash-flow problems caused by “uneven debt service” for local governments that took over their redevelopment agencies’ obligations, as well as problems with the distribution of revenue in time for debt service payment dates, according to Fitch.

Fitch said it is concerned about the lack of progress by the state in solving the problems, but said a trailer bill that is now attached to budget legislation could help resolve some of the issues.

It said it will complete its review of the ratings by the end of July.

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